Paul & June

When buying a property in Australia, has anyone ever considered getting the mortgage from the UK.
UK interest is far cheaper and for the moment the current exchange rate would be beneficial too.

Has anyone ever done this and could advise or could anyone see any implication.

Thanks Paul

briwi

I don't know about the logistics of a lender in the UK willing to lend on a property here - but, if you have a mortgage with an overseas bank, the Australian tax office will ask you to pay them a tax of 10% of the interest paid to that bank every three months. Don't ask me why, I still don't understand it.

Paul & June

That's 10% on top of all your monthly payments ?
Could still be beneficial maybe.

seang

I would hazard a guess most lending institutions wouldnt be interested. In the eventuality of repossesion etc it gets messy as the UK bank would be getting tied up in Aus law. Same if there was missed payments etc
In saying that I have heard of it being done but the case I am thinking of was a pretty special case.

Paul & June

Talking to someone in the business it can be done, if you have property here.

jimbo_d

Well nice idea, but for a start you'd find it very hard for a UK bank to grant you a mortgage on a property the other side of the world that in the event you did not pay it would have no legal right to forclose on you. And secondly the exchange rate is historically rubbish at the moment - just over 2.1 AUD to the GBP, when I came over 3.5 years ago it was nearly 3!

RenShen

Slightly different angle on this thread but we were thinking of increasing our mortgage on our uk home from about 35k to 200k and using the money to buy in Oz whilst renting out the UK home. (So also having a small mortgage in Oz too).

We would apply for the mortgage increase whilst still living and working in the UK to qualify, then emigrate.

Has anyone else who has done this know what the possible implications be?

Thanks,
Ren

islandergirl

It's not possible full stop, the mortgage is only legally enforceable in the country of origin. The UK bank will not be interested unless you can supply security consisting of a UK property.

RenShen

Not sure if you are replying to my post or the previous one, but in my case my UK home would be the security for the mortgage.

islandergirl

My previous reply was to OP.

Renshen - there is no legal reason you can't do this, as long as you can service the debt in the UK, that and the security ie house in the UK is the main thing the bank asseses. The main area of concern is that you are leaving yourself open to currency fluctuations, and could end up paying back a lot more a result.

Wages are generally lower in Australia so you could end up earning less, in AUD and then having to repay at a less favourable exchange rate in £, which could hurt a bit financially.

Why not split the difference borrow enough to give you a 20% deposit in Aus which is the preferred minimum that the bank's look for, plus enough to cover stamp duty (varies in different states but allow 5% of the value of the house) and legal fees, application fee ($2k should cover that).

That way you have a mix of AUD/GBP and some of the benefit of a cheaper mortgage in the UK.

RenShen

Thanks for that. In our case my husbands wage will be slightly higher there than here, though my income is as yet unkown. We had hoped that the rental income fromt he UK property would cover the mortgage so there should be no problems with the currency fluctuation, though if the property was empty for a while this would affect us.

Its something to consider though, splitting the difference. I will have a bit of a think (just another thing to add to the stress!)

Thanks,
Ren

Grayling

You also need to condider the Australian tax implications for the UK rent.

G

Paul & June

As already mentioned we have a property in the UK that we will be renting out. I like the idea of paying the UK mortgage with it (using the the borrowed money to buy the house in Australia.
Could work.

RenShen

Well yes, thats what I was thinking. I know that the rents (minus expenses) will be taxable in Australia, but I think that's quite fair.

At least this way I will benefit from any house price increases in both UK and Australia. If prices fall then it will be academic as I won't be selling until its worthwhile to do so.

Only stress is that if the UK property goes without a tennant for a while things would be really tight. I hope to avoid that though by setting a competitive rental price. Dont want to make on it, just get the mortgage paid.

Fingers crossed.

Grayling

Alan Collett posted a thread recently which seemed to be good news re Australian tax on UK rentals.

I don't remember the exact details but it would be worth finding.

I believe there are a number of offsets available but these would depend on circumstances.

G