How to Secure a Mortgage as an Australian Expat

This year, securing a mortgage as an Australian expat has presented unique challenges. This has been influenced by shifting interest rates, serviceability requirements, and regulatory standards set by the Reserve Bank of Australia (RBA) and the Australian Prudential Regulation Authority (APRA). In this article, we’ll explore key considerations and provide strategies to improve your chances of securing a home loan as an Australian expat.

Understanding Serviceability for Australian Expats

Serviceability is a crucial factor lenders use to assess your ability to repay a loan. When applying for a mortgage in 2024, lenders add a buffer rate of 3% on top of the standard interest rate. For instance, if the interest rate is 6.25%, lenders will assess your ability to repay the mortgage as though the rate is 9.25%. This ensures that you can manage repayments even if interest rates rise during the loan term.

Income and Currency Considerations

As an Australian expat, one significant challenge is the conversion of foreign income. Lenders will typically convert your income from your current country into Australian dollars (AUD) and apply a 20% income reduction. This means that only 80% of your foreign income is considered in the serviceability calculation, impacting how much you can borrow.

Moreover, Australian lenders often treat mortgages for expats as investment loans. This means benefits like negative gearing (available to Australian tax residents) won’t be factored into the loan servicing metrics for non-residents. Learn more about changes to negative gearing.

Expense and Commitment Management

Managing your expenses and existing commitments is critical for boosting your borrowing capacity. Key factors to consider when trying to secure a mortgage as an expat:

• Rent Expenses: Lenders will look closely at your lease agreements to assess your rental commitments. Reducing rent expenses can increase your borrowing power.
• Credit Card Limits: High credit card limits reduce your capacity to borrow. For example, a $20,000 credit card limit could cut your borrowing capacity by up to $100,000.
• Short-term Debts: Personal and car loans, common among expats in places like the Middle East or the US, can impact your borrowing potential. Reducing these debts before applying for a mortgage can improve your chances.

Equity and Deposit Requirements

In most cases, lenders will require a deposit of 10% to 30%, depending on their lending policies. If you already own property in Australia, you can use the equity in your current property to fund the deposit for a new purchase. First-time buyers or those without property can use savings or liquid assets like shares. Additionally, mortgage insurance is required for deposits under 20%. This is added to the loan amount and repaid over the term.

Rental Income Considerations for Expat Mortgages

If you’re applying for an investment property mortgage, lenders may factor in the potential rental income as part of your serviceability assessment. This is usually based on a rental appraisal or current tenancy agreements. If you plan to explore short-term rentals (e.g., Airbnb), it’s important to inform the lender. However, lenders often rely on the standard rental appraisal for assessing serviceability.

Credit History and Mortgage Approval

Your Australian credit history plays a key role in securing a mortgage. Lenders will review your credit report to assess your borrowing history. A consistent record of repaying debts on time will improve your credit score and your chances of approval. If you’ve been living abroad and have no recent Australian credit history, it’s essential to explain this to the lender and provide alternative documentation to support your application.

Maximising Your Mortgage Chances as an Expat

To improve your chances of securing a mortgage as an Australian expat in 2024, it’s essential to:

• Manage your debt: Minimise short-term debts and high credit card limits before applying.
• Maintain a healthy credit score: Ensure a consistent repayment history on your Australian credit report.
• Save for a larger deposit: The more you can contribute upfront, the better your chances of avoiding mortgage insurance and improving your borrowing power.

Conclusion

Obtaining a mortgage as an Australian expat requires careful planning and strategic financial management. By understanding the key factors like serviceability, foreign income considerations, expenses, and credit history, you can enhance your chances of securing the right home loan.

For personalised advice and expert guidance tailored to your situation, contact us or visit the Mortgages page to learn more. Our expertise can help you navigate the complexities of expat mortgages, ensuring you make informed decisions to achieve your property goals while living abroad.

To learn more, check out Atlas Wealth Groups’ podcast: Expat Chat