mato

We have been in Melbourne for almost 18 months now and will have PR soon. We are looking to buy a house with a UK mortgage rather than Australian, obviously due to the lower interest rates. I gather commonwealth bank do this and probably some others. Anyone else gone along these lines and did you go for a AUD or sterling loan? Any specific problems?

Grateful for any advice.

Cheers

JAJ

If your income is in Australian dollars, how would you plan to manage the foreign exchange risk?

mato

Hi, will be earning in AUD and so I guess a dollar loan is best. Do you have experience of this?

JAJ

If your income is in Australian dollars, your debt should normally be in Australian dollars.

Otherwise you can lose a lot of money if exchange rates move the wrong way. There stories out there of Australian farmers going bankrupt in the 1980s because they took out loans in Swiss francs and Japanese yen simply because interest rates were "lower".

mato

Yup, it would seem that a dollar loan would be best to avoid exchange rate fluctations. It seems to me, however, that most people don't do this, but get a local mortgage at the much higher Australian interest rates. Just wonder if I'm missing something here

sonlymewalter

I have never heard of Aussie home owners doing this for the reasons JAJ mentioned as it would take up a lot of time and effort and considerable risk if not managed correctly.

However, I do know of business's that do and have done this and it's quite common for them to manage their risks on the international market. Particularly government holdings in Australia where there is deemed a potential substantial risk to the Aussie market and they don't want to put all their eggs in one basket.

Maybe do a 50/50 split i.e half of your loan in Aus and half in UK if this is allowed? [not sure of tax implications?]

sonlymewalter

Come to think about it..I'm not sure if a UK mortgage lender would stand the risk of lending in an Aus market for a home loan? I wonder if they could re-possess if needs be given the laws are different? Also, what about insurance against this?...yukkie...sounds like a minefield to me.

Keep in touch and let us know how you go on. Good luck!

Centurion

I was thinking that. Which UK lender is going to lend a residential mortgage to an overseas property in Australia. Even if you could find a lender I wouldn't imagine the rate to be favourable in comparison to the UK interest rate for its domestic market.

The risk would be too great I should imagine. I understand the commercial lending to farmers etc but a simple residential mortgage ?

sonlymewalter

Agree. Overseas investors are less likely to see this as an attractive deal given it's such a small investment. Perhaps not...we'll see...interesting topic though.

mato

That's what I thought too, but take a look at the commonwealth bank London office Website. They seem to have set up a mortgage specifically for this purpose for private buyers. Take a look at their site:

http://www.migrantbanking.co.uk/mort...ng_a_property/

and this PDF on the site:

http://www.migrantbanking.co.uk/docu...tion%20Boo.pdf

I reckon its a goer - at least I'll look into it.

MartinH

Generally a UK bank will not give you a loan to buy an overseas property unless you have:

a. Assets in the UK against which to secure the mortgage.
b. Income in the UK our of which to fund the interest.

Similarly an Aussie bank will not give you a loan at UK rates............why would they?

mato

Sorry if this comes up several times, but not quite sure how the site works and can't see what I have written before yet.

Anyway, yes, I had thought the same as you guys, but the Commonwealth bank website would suggest that they do now do UK mortgages for Oz property purchase. Take a look at:

migrantbanking.co.uk/mortgages_in_australia/buying_a_property/

Wol

If you get a UK mortgage in ££ you will be subject to the risk of exchange rate making the repayments higher or lower.

If you get it in $$ you will be paying Australian interest rates.

Anything else would be like perpetual motion machines: nice idea but not possible <g>.

NickyC

Doesn't look like you'd be eligible for a CommBank loan in sterling, anyway.

That site says:

Who is eligible for an ARPL?
Subject to the banks approval:
■ Any Australian citizen or Australian permanent resident
who is residing and earning a living in another country

Looks like the product is really designed for Australian expats or overseas investors - someone living and working here in Australia wouldn't qualify.

mato

Yes it's just starting to dawn on me now that this wouldn't work out, for all of the reasons above plus due to the current strength of the dollar, converting a dollar house price into a sterling debt at this stage would be expensive. ANZ it is then!

Thanks for straightening me out there