Home Loan Rate – Australia

It is fairly popular for Singaporean citizens to purchase property in Australia, either as an investment, or to live in as a temporary resident. Find out how buying property can differ between the countries, and how you can apply.

Does buying real estate differ in Australia?

When buying property in Australia, citizens of Singapore are treated the same way as other foreign citizens around the world. Despite the size of the country, real estate is not as available and affordable as one may assume.

What many people outside Australia do not realise, is that whilst land may be at a premium, land that is available for development, and properties to purchase, are not always easy to buy and afforible.

Do not worry! Mortgages brokers such as us here at the Home Loan Experts can help you find what you are after! We specialise in helping foreign citizens and temporary residents get Australian mortgages approved at competitive rates with low repayments.

For more information contact us on 1300 889 743 (when outside Australia call +61 2 9194 1700), or enquire online and one of our brokers will contact you.

What is a mortgage broker?

In nations such as Australia, the US, and the UK, the mortgage broking industry has existed for a very long time. However, much of the property in Singapore has been public housing so the industry there is fairly new. Therefore, many people in Singapore are not overly familiar with how they operate.

The services of a mortgage broker are free in Australia for most standard loan applications! This is because when a loan is approved, they are paid for their services by the banks themselves.

A broker operates as a mediator between you and a bank. Initially, you will take your details such as your employment, income, and savings to them. They will then assess your financial status and compare this to what the banks and lenders have on offer. Some brokers in Australia work with over 40 different financial institutions!

The mortgage broker should understand the lending policies of the different lenders, and apply to one they believe most likely to approve your application. This comparison also enables them to pick and choose, and often find better mortgages with lower fees and competitive rates.

Some people in Australia do apply to a bank or lender themselves. If this is the path you take it is important to remember that a bank will only offer you its own products. When you apply directly the bank has no competition, and is less likely to offer discounts on fees and interest rates.

Please also note! Every time you have a loan application declined in Australia, this goes on your permanent record. Known as your credit file, any negative financial transaction recorded here will lower the chance of approval next time you apply. This is one of the reasons why a broker can be a better option.

Do we need to apply for Australian Government approval?

Citizens and permanent residents of Singapore need to apply to the Foreign Investment Review Board (FIRB). This government body determines the level of foreign investment within Australia, including all types of real estate and property.

How much can we borrow?

In most cases, foreigners in Australia can borrow up to 70% or 80% of the value of the property they are purchasing. This is known as the loan to value ratio (LVR). In Singapore, this is known similarly, as the LTV ratio.

If you have a spouse or partner in Australia, you may be able to borrow up to 95% LVR. This is under the condition that legally, you live in the property together as joint tenants, not tenants in common. However, usually the amount is restricted to 90% LVR, or less.

When borrowing over 80% of the property value, note that you will most likely be required to pay insurance to cover the bank if you default on repayments. It is a one off payment at the commencement of your mortgage, and is known as lenders mortgage insurance (LMI).

Apply for an Australian mortgage today!

Do you have property or real estate in mind? We work with over 40 different banks and lenders, and can give you a greater chance of walking away with a great mortgage at competitive rates, on the property you desire.

Contact our specialist brokers on 1300 889 743 (when outside Australia call +61 2 9194 1700), or enquire online and they will contact you.

An interest in advance loan enables you to pre-pay the interest of the loan for the following financial year. These are available from a number of different lenders with fixed rates for a period of up to 5 years.

As a borrower there are two benefits you can receive; rate discounts and tax deductions. The first is a discount on the interest rate as the lender has your payments earlier.

In some cases the lenders will allow the rates to be fixed for longer which is beneficial in a period where they are rising.

Tax deductions are the main reason people opt for interest in advance loans. Paying the sum before the end of the financial year allows investors to reduce their taxable income for that year and therefore pay less tax.

1. Who can apply for a loan?

Generally these loans are only available to investors, and to people who switch to a fixed rate when refinancing their mortgage. If your loan is not tax deductable there is a far smaller savings benefit and therefore little reason to pay your interest in advance.

2. How much can I borrow?

Most lenders are willing to loan up to 80% of the property value (80% loan to value ratio or LVR). This is especially true if you are also borrowing funds to pay the interest in advance.

With LMI (lenders mortgage insurance) however you may be eligible to borrow up to 95% LVR.

3. How much can I save?

As mentioned above this type of loan has two types of savings;

• Discount interest rates: Generally you can save between 0.15% and 0.20% off your rate.
• Tax deductions: If you own an investment property or are refinancing, you should be eligible to apply for tax deductions. Paying your interest in advance therefore lowers your taxable income for the current year. This means you pay less tax. How much you save depends upon how much you can deduct.

4. You can borrow to pay the interest.

As lenders require you to pay in advance, you are unable to proceed if you cannot supply these funds. Some lenders therefore will allow you to borrow the funds to pay the interest for the following year.

By doing this you free up your funds for other purposes, however you must make sure that the tax and interest rate savings you have on your loan outweigh the cost of borrowing the payments.

5. What are the disadvantages?

Unlike with other types of loans the additional repayments you may make on the loan are restricted. It can also be difficult to get features such as redraw, 100% offsets and portability.

6. Where can I find more information?

Not all banks and lenders allow you to pre-pay the interest on your loan. Mortgage brokers that work with many different lenders and specialise in areas such as interest in advance home loans will know their lending policies. Thy will be able to guide you in the right direction and find you a lender with which you have the best chance of being approved.

It is also important to speak to your financial advisor such as an accountant or taxation agent. They should be able to give you a good idea whether this type of financial product will suit you and your taxation requirements.

What is an SMSF?

A Self Managed Super Fund is a trust you use in order to manage your own superannuation. Basically instead of the employer provided super fund, you have direct control over your assets. This enables you to choose where you invest your money for your retirement.

You can put the money in a number of different places including capital investments such as shares and property. Each different investment comes with a variety of risks.

What laws and restrictions will affect investing in property?

Whilst is is possible to use your fund to invest in property, there are certain laws and restrictions that can affect your eligibility and limit the options you have available.

Some examples of the legal conditions under which an SMSF can borrow money include;

• The asset is an asset that the SMSF (you) could legally otherwise acquire if it had available funds
• A security trust (security custodian) holds the asset until all repayments are made.
• Once all repayments have been made the SMSF must have the right to acquire legal title of the asset from the Security Trustee

How much you can borrow with these loans differs from normal mortgage applications. Standard investment loans are offered at up to 80% of the property value however lenders usually restrict the amount to 72% or 75%.

It is also important to note that loc doc loans are not available and the fund must be able to prove it can repay the loan.

Which banks and lenders can help and what interest rates are available?

Many banks are not willing to lend to SMSFs. They believe that the loans are more complex and lead to less profit. However there are a number of lenders that do not see it this way and are willing to assess an application. These can be difficult to find however without professional help from a mortgage broker.

Interest rates for SMSF loans are higher than for normal property purchases. Depending upon your circumstances and the risks the lenders perceive, low interest rates may be available. However as there are large differences in pricing between the major lenders this depends largely upon which bank you apply to.

What are the risks associated with investing in property this way?

Property is what is called a capital growth investment and can be useful for capital gains and tax benefits using negative gearing and depreciation allowances. However as the global financial crisis showed, value can fall from time to time possibly leading to large capital losses.

As for cash flow, the property may be vacant or tenants may not pay rent and you may default on your repayments. If the situation arises where you need money it is also difficult to sell quickly at a high price.

How Should I Apply?

Applying for a loan on your own can be difficult. There are not too many lenders willing to lend to SMSFs and each declined application will affect your eligibility next time around as it will go on your file. Even if you find a lender yourself, such as your current bank, you are unlikely to be offered the lowest interest rate.

Applying through a mortgage broker that works with many different lenders and specialises in different loan types such as SMSF loans, is the safest option. As they know the lending criteria of the banks they are aware of who offers these loans, where you may be eligible to apply and who may have the lowest interest rates.

What is NRAS?

In 2008, the Australian Federal government, along with commitments from states and territories, initiated the National Rental Affordability Scheme (NRAS). NRAS legislation represents a long-term plan aimed to provide new rental housing to low and moderate-income earners at affordable costs.

Under the NRAS, potential investors are urged to buy an NRAS approved dwelling and agree to rent the property out at 20% below the local market home rental rate.

As an incentive to encourage large-scale investment in NRAS approved properties, the government offers either a grant or a tax exemption for up to 10 years. Based on present criteria, the Australian Government has identified more than 1.5 million national households as potential tenants eligible for NRAS assistance.

What are the Incentives?

The National Rental Affordability Scheme is a national opportunity for a property investment that provides financial incentives that combine both a potential real gain and a tax rebate. Investing in an NRAS approved property can currently provide up to almost $10,000 in state and national tax tree incentives.

The NRAS agreement is secured for 10 years, but the property must remain approved for the benefits to continue. When the agreement ends, the investor is free to on-sell the property or rent it out at market value. Prior termination will incur a penalty unless the buyer agrees to continue the obligations under the NRAS agreement.

Investing in an NRAS Property

NRAS is aimed at large scale not individual investment. Obtaining NRAS approval of properties and maintenance of that approval is complicated legal process. Consequently, investors usually purchase an NRAS approved dwelling from a NRAS approved consortium.

Consortiums consist of two or more investors that purchase or construct a home development that will meet the NRAS requirements. Consortiums can take different legal forms. Non-Entity Joint Venture, Head Lease Structured and Real-Estate Delivery Agreement Consortiums are most common.

Typically, the consortium provides the funds to finance a housing development and obtains NRAS approval. The individual investor then purchases one or more of these properties as their investment and gains the benefit of the NRAS incentives and any future potential property sale. Usually the consortium maintains the property. The individual is responsible for claiming their NRAS tax rebate in their tax return.

How to Finance an NRAS Investment Purchase

Finding a loan to finance a purchase through consortium can present difficulties. Experienced national mortgage brokers that specialise in NRAS approved properties can assist the investor in obtaining financing based on their income, employment, property type and property location.

Getting approval for a loan largely depends on how banks and lenders view NRAS properties and the particular consortium through which an investor chooses to invest. Banks and other lenders investigate the legal structure and contractual policies of consortiums with their investors and determine how the policies impact the security position of the property. After evaluation some lenders may label certain NRAS consortiums as high-risk investments.

Although some banks and lenders approve many consortiums with a “headlease” structure, many lenders favour consortiums that are structured as non-entity joint ventures. Every investor should consult with their financial advisers and mortgage brokers to determine the right product for them.

A mortgage broker can help you finance your loan

A mortgage broker experienced in obtaining loans for NRAS properties will know the NRAS consortiums and their potential lenders. Additionally, the broker can help frame an investor’s application in the most favourable light for their situation and the lending guidelines of the banks.

The broker can work with banks to obtain a mortgage with a Loan to Value Ratio (LVR) of up to 90% plus Lenders Mortgage Insurance (LMI). In some cases, lenders can be found that will consider a portion of the tax incentive in assessing the investor’s ability to repay the loan.

Do you have approximately $150,000 in your Superannuation? If you do, you may be eligible for a Self-managed superannuation fund (SMSF) loan to purchase real estate with your Super!

A vast number of major mortgage brokers and bank managers do not understand SMSF Loans as they are complex and they do not deal with them on a daily basis. This means that errors can be made, and loans declined purely because of their lack of understanding; as such it is strongly advised that you seek expert advice when considering Self Managed Super Fund borrowing.

There are also significant differences between policy and pricing between different banks, so speaking to a specialist mortgage broker such as The Home Loan Experts will ease the confusion that you would face dealing with the different financial institutions directly. You can find out more about their services on their Self Managed Super Fund Loan information page.

What are the benefits to borrowing in your fund?

Since the Superannuation Industry Supervision Act 1993 (SIS ACT) was amended in September of 2007, Funds now have the ability to borrow for Property Investments. This allows DIY Super Funds to take advantage of the same benefits as regular property investors.

Below are some of the benefits available to SMSF loans: (Please note: SMSF loans are also commonly referred to as Warrant Trust Loans, Instalment Warrants or SMSF Trust Loans.)

• Reduces tax rate on rental income to 15%
• Tax advantages on sale of investment property
• Super Funds are able to purchase property worth more than it’s available funds through the benefit of gearing
• You can use income from the security to help pay off the loan
• Extensive tax deductions can be claimed by the Super Fund
• Funds receive all income and capital growth, even if the property has not been paid off as yet
• Superannuation assets are secure, as the lender does not have recourse to the SMSF’s other assets in the event of default

How do I purchase a property with my SMSF?

Self-managed Superannuation Funds can choose any type of property as investment; these investment properties include Commercial, Residential, Holiday Units and Retail. However, you must ensure that the property complies with the SIS ACT, the SMSF’s overall investment strategy (Superannuation funds must have a written investment strategy in place), and that the Fund has sufficient equity to complete the purchase.

Here are some basic guidelines as to how a SMSF purchases a property: (Please Note: The SMSF must purchase property from an unrelated party. Purchases must be at arm’s length.)

• Establish your SMSF – The Trust Deed establishing the fund must have the power to Purchase Real Estate, Borrow Money, and Mortgage Property to secure payment of that borrowing
• Obtain a loan approval – it is recommended to obtain a Pre-Approval on your Superannuation Fund before paying your deposit
• Establish the property Trust Deed – this is something that your accountant or financial adviser will need to create. It is also important that the SMSF Trustee itself is not the Property Trustee, nor are the individual member of the SMSF are to act as Property Trustee – as this will breach the regulations of the SIS ACT
• Exchange of Contract – deposit to be paid from Superannuation Fund
• Formal Approval – Once Valuation on security is completed the lender will issue a Formal Approval
• Loan Documents Issued – The lender will have their solicitor prepare loan documents and issue to you
• Settlement – On completion of the purchase the Property Trustee mortgages the property to the lender

How is the loan structured?

The property itself is owned by a security trustee. You can click on the below picture for a detailed flowchart of how the mortgage & ownership of the property will be setup.

What are the features of a Super Fund Loan?

• Members of the SMSF are unable to reside in the investment residential property – however they can do so after retirement, providing it is transferred from the SMSF before hand
• The lender has no recourse to the other assets of the Super Fund, providing the SMSF with absolute protection for its other assets
• The Super Fund receives the income from the investment property
• The legal owner of the real estate will be the Property Trustee
• The beneficial owner of the real estate is the Super Fund
• The Fund can make any adjustments to the property as it sees fit (e.g. Lease, renovate, repair, or sell) providing this is in conjunction with the loan terms
• The SMSF has the ability to reduce or pay out the loan at any time (subject to the terms and conditions of the lender and loan)
• After the loan is repaid to the lender the legal ownership of the security will be transferred to the Super Fund – repayments of the loan are made from the SMSF

Compare Lenders

Below is a quick comparison of the policies used by some the major lenders we deal with for super fund loans:

Lender 1:

• Repayments: Principal & Interest
• Loan Term: 30 years (residential), 15 years (commercial)
• Maximum loan size: $4,000,000
• Maximum LVR: 80% (residential), 65% (commercial)
• Security: Residential or commercial

Lender 2:

• Repayments: Principal & Interest
• Loan Term: 25 years (residential), 15 years (commercial / rural)
• Maximum loan size: $5,000,000
• Maximum LVR: 80% (residential), 60% (commercial), 50% (rural)
• Security: Residential, commercial or rural

Lender 3:

• Repayments: Principal & Interest (fixed rates available)
• Loan Term: 30 years (residential)
• Maximum loan size: $500,000
• Maximum LVR: 80% (residential)
• Security: Residential

Seeking advice – how important is it really?

There are number of rules and regulations regarding establishing a Self-Managed Superannuation Fund and planning for your retirement.

As such it is highly recommended that you seek professional advice by selecting a qualified accountant, and a specialist mortgage broker. You can find out more about borrowing in your super fund the Home Loan Experts SMSF Trust Loan page.

It goes without saying that you should obtain professional tax and legal advice before establishing your own Super Fund, purchasing a property in a fund or applying for a mortgage with your fund.

What is Sepp 5 zoning?

A Sepp 5 development is a specialized block of units, townhouse estate or village where the occupants are restricted to be either over the ages of 55, pensioners, disabled or elderly couples. These developments have approval from the local council to build more units on a block of land then what is usually allowed, this means the cost of each unit to build and sell is cheaper than the same type of units in the same area. This way it can be marketed better to the baby boomer generation.

These developments have been specifically designed to assist the day to day living for elderly people who require certain features for example:

• Access ramps in ever building
• In area medical centre
• Specialized bathrooms
• Larger doorways
• Public transport which comes straight to the development
• Meal deliveries
• Community activities
• Community with people of similar ages
• Low maintenance security upkeep

A Sepp 5 development is different to a retirement home, it is an independent living accommodation where the occupants has ownership of each separate title and there is no in-house nurse, there is no set time for dinner and activities. It is an over 55s friendly environment where the occupant is free to do what they please and is self reliant.

Why Invest in a Sepp 5 Security?

The reasons for purchasing a Sepp 5 accommodation to live in have been outlined above; the reasons for investing in one are below:

• Excellent rental yield
• Good price – for the price of the same unit dimensions unit in the same area Sepp 5 is generally cheaper
• Usually located in growing areas within 10 mins from major cities
• Usually cash flow neutral or positive

How can I apply for a Sepp 5 home loan?

Sepp 5 or over 55 securities are only taken on as standard securities by less than a hand full of financial institutions, depending the where the security is and the loan amount. Most banks are uncomfortable in lending against these securities as they believe that is harder to resell as it is a restricted market.

It is best to contact a specialist Mortgage Broker who deals in these kind of scenarios on a daily basis. You will have to show that you can afford to make repayments and have ongoing cash flow. Unfortunately if you are retired and on the pension then this will restrict the size of the loan that can be approved. However investors buying these properties to rent out can get approval for a mortgage.

Investing in a foreign country is always risky.  The business and mortgage practices are different, and you are not familiar with how stable that country is.  For ‘would be’ investors in Australia there are a host of possible opportunities for purchasing real estate that can really earn you back your investment and make you some profits.

This means that you may require our help in deciding which property should be a worthwhile purchase. With so many options available it can become very confusing. What is even more confusing is the range and variety of lenders who may try to take advantage of the limited knowledge as a new investor in a foreign land. This can be avoided by working with us as we have contacts with many trusted banks and lenders that we can tailor fit a 90% home loan for you.

Due to the fact that it is a 90% home loan the investor would of course be required to deposit a certain amount in order to have your home loan approved.  Without the deposit you will generally not be allowed to get a loan.  However, in some exceptional circumstances where other property is likewise mortgaged, there is a good chance that you will be able to get a good deal on the loan.

The nice thing about the 90% loan is that you need not have genuine savings available to apply for it and get approved.  A gift from a relative will do in order to do away with the requirement of genuine savings.  You may need a gift letter to encourage the banks to approve the loan, but this is a generally accepted practice.

Some would like the possibility of getting a 100% home loan, and this is very possible only if some other person is willing to act as guarantor of the person applying for the loan.  With the help of a guarantor, finally deciding on the 90% home loan would be much easier.

There are a lot of instances when purchasing property in Australia has its benefits.  This is true whether you are a foreigner or an Australian citizen.  Investing in property and real estate and Australia is often low risk as value of property is constantly on the rise.

However certain steps must be taken before a loan can be made.  First and foremost Foreign Investment Regulatory Board (FIRB) approval is often necessary unless you fall under the exceptions.  There are several exceptions.

First and foremost an Australian citizen living approval does not need FIRB approval.  Where your spouse is Australian, and you are purchasing a house to live in as joint tenants you likewise need not ask for FIRB approval.  Residents of New Zealand are likewise exempt, and if you hold a permanent resident visa you need not seek any approval.

Temporary residents on the other hand are exempt when purchasing single blocks of vacant land, or new dwellings.  Purchasing a second hand dwelling to live in is also exempt, or even purchasing new dwelling as long as they are pre approved to be sold to foreign citizens.

If you fall within these exemptions, that is one less process to worry about.

Whether or not you need FIRB approval is one thing, while another item for those trying to get a loan is how much of a loan they can get.  Australian citizens living abroad can generally get up to 95% LVR with LMI.  This is the same maximum for those with foreign spouses either working abroad or working in Australia.  Temporary residents working in Australia on the other hand can get up to 85% LVR, while foreign nationals who live and work abroad can get up to 80% of the total property value.

Investing and buying real estate is a genuine opportunity to make a wise investment.  As long as all the requirements such as FIRB approval and the necessary documents are submitted, it shouldn’t be hard at all for a foreigner to get a loan to purchase the property they would like in Australia.