Your experience in buying a house will depend largely on how much risk lenders think they would be taking on by lending money to you. This, plus your income and assets, are among the largest factors affecting your borrowing power or borrowing capacity as an Australian expat.
What Is Borrowing Power?
Your borrowing power is the largest loan a lender is willing to approve for you. Having low debt, a strong income, a valuable asset portfolio, and reasonable living expenses, among other things, will increase anyone’s borrowing power.
If you are an expatriate, however, there are some special factors to consider. First, the loan approval process is different, and that will affect how lenders calculate your borrowing power. Also, tax laws and other regulations will affect your borrowing power in many ways. Knowing how to position yourself to make the most of these laws will allow you to borrow more.
How Is The Loan Approval Process Different For Expats?
Australian expats can apply for a mortgage and, in most cases, can borrow as much as a citizen residing in Australia, although the loan approval process might be slightly more complex, due to these factors:
- Some lenders will use your foreign tax rate when calculating your net income. This can help boost your borrowing power, especially if you live in places with low tax rates, like Hong Kong or Singapore.
- Each lender has a list of acceptable countries and currencies
- Australian expats usually need a 10% deposit plus extra funds to cover property purchasing costs.
- Proving income can be tricky, especially, if you are self-employed.
- Calculating borrowing power is complicated
- The currency of your foreign income: The type of currency you earn plays a huge role. Certain currencies, such as US dollars, British pounds, or Singapore dollars, are regarded as safe and stable, thus lenders might be willing to consider 80% of your gross income when determining how much they will lend you if you earn in these currencies. However, if you are earning in currencies that are less stable, lenders might consider less of your gross income and there are some currencies most lenders will not accept at all. Click here to check which currencies most lenders accept.
- Tax rates: As mentioned before, few lenders are willing to accept foreign income tax rates. If you live in a country with little or no income tax, you will have much more borrowing power if you choose a lender willing to accept your local income tax rate.
- Interest rate: Your borrowing power increases significantly as interest rates decrease, because your repayments get lower as interest rates decline. The timing of your application is important.
- Exchange rate: Lenders usually convert foreign currency into Australian dollars using their exchange rate, which is more conservative than the market rate. This can have a big impact on your borrowing power. Most lenders usually use the XE Live Exchange Rates to assess. Another exchange rate website that may come in handy is Travelex.
- Debts: Lenders examine your debts to see if you can take on more. There are good and bad debts. Examples of bad debts are personal loans or large credit card debts, which can reduce your borrowing power. Also, items such as credit-card debts may be assessed differently when they are from overseas, which will affect your borrowing power.
- Living expenses: Lenders look beyond income and debts. They like to assess what your daily expenses look like; for example, private schooling costs can reduce disposable income and, therefore, your borrowing power. There are often hidden costs of living as an expat that Australians don’t discover until they are living overseas. Be sure you are fully aware of what to expect for your cost of living during the term of the loan and reduce your daily expenses in the months leading up to applying for your mortgage, as this will increase your borrowing power.
- Credit score: A clean and strong credit score boosts your borrowing power. Always remember to check for inaccuracies in your credit history, as mistakes are pretty common at rating agencies.
- Asset portfolio: The value of any property, stocks, cash and other investments and assets you hold may add to your borrowing power.
- How much of your income the lender accepts: As mentioned earlier, some lenders accept your net income after taxes in the country where you reside; others subtract Australian income tax from your gross income and accept that amount. This means that if you are living in a country like Singapore, where income tax is much lower than in Australia, you will have more borrowing power if you choose a lender that accepts net income using your local income tax rate. The other factor that affects how much of your income a lender will accept is currency. In general, the more stable the currency, the more of your income the lender will accept.
- Bigger deposit: Cutting down on your expenses or increasing your savings to make a bigger deposit will increase your borrowing power.
- Consolidate debts: Cutting down on your number of debts signals to lenders that you can handle a home loan and are in a better position financially.
- Extend the loan terms: Stretching out your loan term means lower repayments, which means an increase in borrowing power.
- Get a fixed-rate home loan: allows for lower assessment rates, increasing your borrowing power.
- Assets: Income from foreign investments such as interest income or dividends can all be counted towards your regular income, provided you can produce your last two years of foreign tax returns or bank statements showing salary credits.
- Investing in properties: Investment properties with strong rental returns will help boost your borrowing power if you choose a lender that will accept some of the rent you collect as income or subtract it from the debt you owe. Once again, choose your lender wisely.
These are just some of the issues expats can face. For detailed information on the process of applying for an Australian expat home loan, click here. Or contact one of our specialist expat home loan experts.
What Factors Affect Borrowing Power?
The main issues lenders will consider when assessing your borrowing power as an expat include:
How Can You Increase Your Borrowing Power?
As an expat, there are certain ways you can increase your borrowing power. These include:
Frequently Asked Questions
Others will add a buffer of approximately 30% to your repayments to allow for increases in interest rates. Still others assess your foreign debts at a much higher ‘assessment rate’, which greatly reduces your borrowing power.
For example, you will be seen in a favourable light if you live in a stable country like the US and can provide your income tax statements from the past two years, six months of bank statements, and credit history.
Contact our specialist mortgage brokers at 1300 889 743 (+61 2 9194 1700 from outside of Australia) or fill in our online assessment form and we will help you find the perfect solution.
John, an Australian expat living in Japan and married to a non-resident, wanted to purchase an investment property for $1,500,000. John had a good and stable income, a strong asset portfolio, and an excellent credit rating. However, before proceeding with the loan approval process, John wanted to increase his borrowing power.
Our broker, Romy Dhungana first suggested John lower his credit limit, which meant a lower repayment amount. Secondly, he asked John to apply for a loan with Brighten. Romy specifically chose this lender because it accepted 100% of John’s gross income in Japanese yen currency. More importantly, Brighten accepted one on title, two on loan (using John’s income and his partner’s to apply for the loan but putting only John’s name on the title to the home), which increased his borrowing power and provided an exemption from foreign citizen stamp duty.
Get Started On Your Home Loan Journey
Getting through the home loan application process can be quite complex for an expat.
Contact our specialist mortgage brokers at 1300 889 743 (+61 2 9194 1700 from outside of Australia) or fill in our online assessment form and we will help you find the perfect home loan.