There have been a number of news articles in the last couple of months on the topic suggesting that Australian banks are restricting loans for non residents. While the changes primarily target foreign citizens they also impact Australians living overseas. How are you impacted?
What has caused Australian Banks to restrict loans for Non Residents?
Australian banks and other financial institutions have in the last couple of months begun tightening lending criteria to non residents of Australia and people who earn the majority of their income from overseas. This follows moves by the Australian Prudential and Regulatory Authority (APRA) to improve lending standards, limit speculation in the property market, as well as the discovery of possible fraud amongst a number of foreign borrowers (involving the falsifying or altering of foreign pay slips and bank statements).
What are the new restrictions that apply to loans for Non Residents?
The changes to lending criteria for loans to non residents will depend on whether you :
- are an Australian citizen, or a foreign citizen; and
- what currency you are earning your foreign income in.
Changes to lending criteria could impact you in a number of ways :
- your foreign rental income not being included in your assessable income reducing your maximum lending potential
- Australian tax being applied to your foreign income (irrespective of the tax rates in the country you work) reducing your maximum lending potential
- increased deposit required when purchasing a property (ie. a lower maximum loan to value ration (LVR))
- increased documentation requirements
Loans For Non Residents (Foreign Citizens)
While foreign citizens (including foreign citizens with Australian permanent residency) may still be eligible for a loan to purchase property through an Australian bank, lending criteria have tightened considerably.
For example, the Commonwealth Bank has announced it will no longer accept loan applications from foreign citizens who are not earning an income in Australia, and has reduced the maximum LVR for loans to temporary residents of Australia to 70%.
Loans For Non Residents (Australian Citizens)
Craig Vaughan from MAP Home Loans (specialists in lending to Australian Expats) says “subject to a number of conditions, it is still possible for Australian Citizens living abroad to borrow as much as 90% (or possibly 95%) loan to value ratio (LVR).”
There are still a few Australian financial institutions that will lend up to around 90% (or possibly 95%) loan to value ratio (LVR). In most cases, however, to be approved a 90-95% LVR you will need to be earning income in one of the prime currencies (which includes euro, USD, British pound, Singapore dollar, New Zealand dollar, or the Hong Kong dollar). ANZ bank will currently lend up to 90% LVR for most currencies, however requires face to face verification of your identification before approving the loan, which will require you to meet your bank manager or mortgage broker in person, or be an existing client of ANZ.
It is also important to note, if you are earning in a currency that is linked to a prime currency (eg. the AED is linked to the USD), the banks will treat you as if you are earning a non-prime currency.
Other banks have reduced their maximum loan to value ratios for Australian citizens living abroad. For example, St George and Westpac have reduced their LVR loans for non resident Australian citizens to 70%. Craig Vaughan also states that “St George Bank has now also pulled out of lending to self employed Australian expats making it almost impossible for self employed Australian expats to obtain a loan in Australia”.
What Should You Do?
If you are an Australian citizen wanting to refinance your existing loans in Australia or wanting to purchase a property in Australia, then I highly recommend talking to a mortgage broker that specialises in obtaining loans for Australian expats. As you have read in this article, the lending criteria of the banks is tightening, and every bank has different lending criteria for expats, and that lending criteria could vary again depending on how and where you earn your income.
I recommend my personal mortgage broker, Craig Vaughan from MAP Home Loans. Craig specialises in obtaining finance for Australian Expats and is familiar with the lending criteria of each of the banks, and so will quickly be able to advise you on the best course of action. Craig doesn’t usually work with new clients, however has agreed to offer a free 30 minute discussion with readers of The Australian Expat Investor. Complete the inquiry form below, and Craig will contact you to arrange a time for a discussion.
- Why Australian Expats Should Use a Mortgage Broker
- How Australian Expats Can Finance a Property Investment in Australia
- How one Aussie Expat in Dubai Got Caught Out By New Australian Bank Lending Rules to Non Residents
Do you understand the tax implications of moving abroad? Download our Special Report – Tax Implications For Australians Working Abroad
Disclaimer : This information is for educational purposes only and does not constitute financial or taxation advice. As this information is not advice and has been prepared without taking into account your objectives, financial situation or needs you should, before acting on this information, consider its appropriateness for your circumstances. Independent advice should be obtained from an Australian financial services licensee before making investment decisions, and a registered (tax) financial advisor/accountant in relation to taxation decisions. To the extent permitted by law, we exclude all liability for any loss or damage arising in any way.