Are you thinking of getting a home loan using your own currency? Borrowing in a different currency is considered high-risk for banks and non-bank lenders because of the fluctuating exchange rate. However, you will find that some lenders are prepared to accept foreign currency loan in Australia, of course subject to several conditions.
There are also different lending procedures for different types of non-resident classifications, such as temporary residents and foreign citizens residing outside of Australia. You must first understand which category you fall under before applying for a loan.
Requirements of Getting a Foreign Currency Loan In Australia
Like other types of loans, foreign currency loans require proof of income and serviceability. Additional requirements are:
The Loan Currency Must Be The Same As The Income Currency.
Only two types of currencies are being accepted at the moment. These are Hong Kong Dollar (HKD) and United States Dollar (USD). These accepted currencies can change in the future based on amendments in investment policies, so make sure to keep track of what is accepted and not accepted before borrowing.
If your income currency does not fall under any of these two, you can still get mortgage financing, but not a foreign currency loan. You can opt for a loan in either US Dollars or Australian Dollars. What’s important is that your country of residence or citizenship falls under accepted nationalities for home loan mortgages in Australia. Also that you meet the requirements set by the lender. For more information on who can borrow from Australian lenders, check our article on Foreigner Mortgage.
The Real Estate Property Being Loaned Against Must Be Within Australia.
You cannot use your foreign property as form of security. Foreign currency loans require a local real estate property to get a mortgage loan.
The Borrower Must Have Secured Approval From The Foreign Investment Review Board Of FIRB.
This is one of the basic requirements of foreign investors looking to purchase a property in Australia. For more information on getting FIRB approval, please refer to our FIRB approval application guide.
Loanable Amount for Foreign Currency Loan in Australia
The maximum loanable amount is 60% of the real estate property’s worth. There's no set limit on how much a foreign investor can borrow, as long as it falls within the 60% Loan to Value Ratio.
However, the exchange rate is also taken into consideration not only when applying for a loan, but after your loan has been approved and in effect. If the Australian Dollar dips against your foreign currency, the amount you loaned would now be higher than the initial LVR. In such cases, the lender would require to pay the difference.
You have applied for a US Dollar loan against a property that is worth $2 million AUD. You were then given an LVR of 60%. Thus you were able to get a loan worth $1.2 million USD. Let’s assume that the exchange rate at the time of loan application and approval is 1 AUD for every 1 USD. This means your loan amount is also equal to $1.2 million AUD.
Time passed and the Australian Dollar dips against US Dollar, making the exchange rate 1 AUD per 80 cents USD. This means your loan of $1.2 million USD becomes $1.5 million AUD. This in turn brings up your LVR to 75%, which is way above the maximum loanable amount of 60%. If this happens, the lender will then require you to pay the difference, which is $300,000 AUD, to compensate.
If you can provide additional security for your loan, such as other assets located in Australia that you can use as security, the lender will look kindly at your loan application and make it easier for you to process.
As indicated above, changes in exchange rate causes a significant shift in your loan, which is why many banks frown upon foreign currency loans. Finding a bank or a lender that would accept foreign currency loan is therefore a daunting task, but not impossible. We recommend you find a mortgage broker to assist you in this aspect. If you need help finding a mortgage broker for your foreign currency loan, contact us.