Foreign currency home loans

The Australian Government has made it clear it isn’t in the business of selling the country’s real estate to foreigners. This means that before you plan to use foreign currency to get a loan, you need to know if you’re actually allowed to buy property in Australia for residential or investment purposes … unless they want to attract some unwanted attention from the law. If you’re a foreign resident, you’re not allowed to buy established residential dwellings in Australia, either directly or through a trust or company structure. You might be able to buy other types of residential property – such as a new apartment, vacant land or property ready for redevelopment – but you will need to get approval from the Foreign Investment Review Board beforehand. The principal at play is that any property owned by a non-resident must add to Australia’s real estate stock – it can’t be an existing property or a like-for-like, old-for-new replacement. If you’re a temporary resident, you can buy an established dwelling if you use it as your Australian residence and get prior approval from the Foreign Investment Review Board. So, the rules are quite strict and must be understood before you apply for a loan. If none of this is putting you off buying your piece of Australian paradise with your overseas currency, there are other things you need to keep in mind.

Can I borrow money in a foreign currency?

Yes, many financial institutions will lend to foreigners or expats for the purpose of buying Australian property. They are likely, however, to have quite strict lending criteria because all lenders have to weigh up the risk in every case. For starters, you need to abide by the lenders’ standard loan requirements. Generally, you need to prove that you have a steady income and be capable of paying back your loan as required in the mortgage contract. Many lenders don’t allow foreign investors to borrow more than 60% of the property’s value. This is expressed as a property’s loan-to-value ratio or LVR. One fundamental requirement is that the loan must be in the same currency as your income. That means, for instance, that you can only get a loan in US dollars if you’re being paid in US dollars. The property being used as security for the loan must be in Australia. Generally, Australian lenders won’t accept overseas properties as security – it makes it difficult to recoup losses if the borrower is unable to pay back the loan. Because of the risk involved in loaning money in a foreign currency and the comparative lack of competition in this space, you can also expect to pay a higher interest rate than someone paying off a home loan in Australian dollars. An easier path to success could be to approach a lender with offices around the world, especially if they have a presence in Australia as well as your country of residence. While getting a loan with a global lending institution isn’t a guaranteed path to success, your application is likely to be looked on more favourably … especially if you have a long-time affiliation with that lender.

It should be noted that your loan from an Australian lender might be on a foreign currency but its otherwise still entirely an Australian loan with respect to interest rates. Some countries have cheaper interest rates in that country however a foreign currency loan isn't getting you cheap funds from that country, just setting your Australian loan in a foreign currency.

How much foreign currency can I borrow?

The amount you can borrow depends on the lender, how much you need to borrow (taking into account the minimum loan-to-value ratio), your financial situation and where you live. There are many other factors, too, that any lender will look at to assess the level of risk. It’s best to speak with an expert about your specific situation.

Can the exchange rate affect my home loan?

Currency fluctuations are one of the major reasons banks and other financial institutions are nervous about lending in a foreign currency. Often, lenders will ask you for additional security or payments if there are any major currency fluctuations – especially those that take the LVR above 60%. The relevant terms are usually included in the fine print of your home mortgage policy. Let’s say you would like to take out a home loan for US$600,000 for an Australian property worth $1.25 million. At a typical $A v $US exchange rate of 80 cents – where $1 is worth 80 US cents – this property would be worth about US$1 million, which means the LVR would be about 60%. But if the value of the Australian dollar falls in comparison with the US dollar, then the LVR would change as well. If the exchange rate drops from perhaps 80c to 70c, the value of our example $1.25 million property would fall to US$870,500. This means the LVR on the $US600,000 loan would be about 69%, which could be beyond what the bank deems acceptable for this type of loan. If this happens, you have a few options:

• Make a lump sum payment to make up the difference.
• Provide an additional property in Australia as security.
• Borrow money in Australian dollars. This may help you avoid the risks that come with adding a second security to your loan. Before you weigh up any of these options, though, you should talk with a mortgage expert.

What home loan currencies are available?

Australian lenders have their own list of acceptable currencies that are available for loans. The most favoured are:

• New Zealand dollar
• United States dollar
• British pound sterling
• EU euro
• Singaporean dollar
• Hong Kong dollar
• Japanese yen
• Danish kroner
• Norwegian krone
• Swedish kroner
• Swiss franc Some lenders will loan you funds in less popular currencies but these are likely to come with lower borrowing limits. You need to shop around to see which lender might offer you what you need.

Can I source a foreign currency loan in Australia from any country?

As long as you meet the lender’s requirements, you should be eligible to get a foreign currency loan. The only exceptions are countries that are subject to a trade embargo (check with Australia’s Department of Foreign Affairs and Trade) or have known tax issues. However, you might not always be able to borrow money from Australian lenders in your local currency. When this is not possible, you will likely only be able to borrow in either Australian or US dollars. It’s important to remember that you can’t get a foreign currency home loan using an overseas property as security. One way around this is to borrow from a lender in your country, then move the money to Australia and use it as a deposit. But not all lenders accept this arrangement. You may, for instance, be expected to have an Australian bank account. Contact us to learn more about this.

What to do next

Our mortgage brokers know which lenders have taken a measured approach to foreign currency home loans, so we can help find the right one for your circumstances. This information is general in nature and you should always seek professional advice when making financial decisions. Book in a quick call with our customer care team.This information in this article is general only and does not take into account your individual circumstances. It should not be relied upon to make any financial decisions. UNO can’t make a recommendation until we complete an assessment of your requirements and objectives and your financial position. Interest rates, and other product information included in this article, are subject to change at any time at the complete discretion of each lender.