How much can I borrow?
“How much can I borrow?” is the MILLION-DOLLAR question prospective Australian Expat home buyers ask a mortgage broker when they want to purchase a new property.
Australian Expats are accessed differently than non-expats when applying for a property loan. There may only be a few lenders who will accept the currency that you your salary is pais in. Therefore, choosing the right lender is essential for a successful loan application.
In a nutshell, banks or lenders have a five-point CHECKLIST for accessing the lending risk for Australian Expats wanting to purchase property in Australia. This checklist needs to be met before a lender will FINANCE your mortgage. They are;
- Income types
- Loan to Value Ratios
- Currency factoring
- Application of tax
- Interest rates and buffers
1.INCOME
As an Australian Expat, the lender will look at your income and ask you to provide information on your base salary, bonuses, commissions, allowances and then they may income discount.
- Base salary
- Annual Bonus
- Commission
- Allowances
- Income discounting
Income discounting is different for each lender. It will depend on where you live which will determine the % of discount you will receive for your income. The minimum amount a lender will apply to your income is 20%. In other words, they will see your income as being less than what it actually is. All lenders are different, which is why picking the right lender is essential.
2. Loan to Value Ratio for LVR
What is LVR? It is the ratio between the amount of equity/deposit you have in your property compared with the amount you need to borrow to purchase or refinance your loan. Lenders for Australian Expats usually like to see 70-80% LVR. Below is a great diagram showing how much equity you will need to purchase a million dollar property. For an LVR of 70% you will need $300,000, for an LVR of 80% you will need $200,000 to purchase your property. banks are different on their assessment of risk for LVR.
3. Currency Factoring
Not all currencies are assessed equally. A lender may discount your income currency to 80%, or 70% of its value, to protect itself from movements in the Australian Dollar against the money you are earning your income.
4.Application of notational tax
Australian bank/lenders will apply notional Australian Tax to your overall income.
What is the notional gross taxable income? “Notional gross taxable income” means the number of whole dollars in the amount that would have been the taxpayer’s taxable income of the year if the exempt amount were not exempt income.
- Australian tax rates
- Local tax rate, e.g.
- UAE Zero tax
5. Interest Rate Buffer
What is an interest rate buffer? An interest rate buffer is added to your loan repayments to ensure you can meet your mortgage repayment requirements if any future interest rate rises. This “Buffer” is determined by APRA , the acronym for Australian Prudent Regulatory Authority/ APRA is Australia’s prudential supervisor, and is responsible for ensuring that Australia’s financial system is stable, competitive and efficient.
“Under APRA’s prudential framework, banks must apply certain minimum criteria when assessing a borrower’s repayment capacity. This includes a 3 per cent minimum serviceability buffer, to be applied above the housing loan interest rate.”
APRA Website – Housing lending standards: Reinforcing guidance on exceptions
The APRA’s Current serviceability buffer is 3%
- 2021 the interest rate was 2.25% + buffer 2.25% = 4.5%
- Today the interest rate 5.75% + buffer 3% = 8.75%
You will be accessed at 8.75% for your serviceability for your mortgage repayments.
OUCH! Start saving!
It is best practice to reduce personal debt, like car loans, credit cards, and student loans. It may take six months to one year to two years to improve your financial position to give yourself the best possible chance of securing your loan with your lender. With all this in mind, you must receive the correct advice from an experienced mortgage broker who has the industry knowledge and expertise to connect you with the right lender for your situation
Australian Expat Finance always tries to make sure all information is accurate. However, when reading our website, please always consider our Disclaimer policy.