How can you find a high-performing investment property from a distance?
It’s a question that Australians who live and work overseas ask themselves all the time, and right now might be the best time to be asking it.
This month, Westpac, St George, and Macquarie banks reduced the serviceability floor rate for home loans from 5.35% p.a. to 5.05% p.a. which highlights an opportunity for expat investors to receive an increase of borrowing capacity. By dropping their floor rate to 5.05%, the Westpac group reflects the low rate environment we are currently in and proves to customers that they want their business, so they borrow more.
When you apply for a home loan, the lender will assess all loans, new and existing, at rates much higher than the rate you pay. Government regulator, Australian Prudential Regulation Authority (APRA), requires banks to ensure their customers can repay loans at 2.5% more than current interest rates, or the ‘floor’ rate set by the bank, whichever is higher. They call this the earthquake test, and it is there to ensure that if interest rates rise, you can still service your loans.
Because expats have additional borrowing capacity restrictions, banks will assess 60% to 80% of actual income to account for foreign exchange risk. The benefits of investing now in a recession-like market are paramount. The decrease to 5.05% means for some Australian expats (permanent residents living overseas), the borrowing capacity increases by up to 15-20%. If you are only borrowing 60% of the property value, some banks will give you a very low-interest rate; for example, Macquarie Bank’s current variable investor rate is 2.69% p.a.
Thus, the other big banks will likely follow this trend (Westpac’s new 5.05% rate comes in below ANZ’s 5.25%, CBA’s 5.40%, and NAB’s 5.50%), and if they do, borderline customers across major lenders will have more chance of loan approval and help the economic downturn shift back.
The current economic downturn means house prices have fallen. According to CoreLogic’s national home price index, there was a 0.1 percent fall last month in house prices, but that was entirely driven by a 0.9 percent slide in Melbourne and a 0.3 percent decline in Sydney. Accounting for around 40 percent of the nation’s homes and more than half the home values, a drop in Sydney and Melbourne means their declines pulled the overall index slightly lower.
So, it makes sense to invest in property back home if you plan to return one day. While you are still away, investing now means you can look for property in your chosen catchment area, eliminating the need to look for a rental property when you get back.
While we expect this trend to last sometime, the rate reduction is excellent news for Australians living overseas who’d like to invest now. As the Expatland mortgage partner, Stoneturn is well placed to assist you with enquiries about the changes.
If you are an Australian expat who would like to review a current loan or explore new mortgage options, please contact Stoneturn today.
