“I’m so stressed. I have 9 properties settling in the next few weeks and none of the banks want to lend to foreigners, I don’t know what to do …”
This message was from a friend of mine who’s also a mortgage broker. She sometimes turns to me for advice regarding tricky loan scenarios.
So, has overseas lending for foreigners really come to the end?
The perfect storm for Chinese investors
There are several factors that have combined to cause a disaster for investors.
- The banks stopped lending to foreign investors.
- Chinese nationals are restricted from taking money out of China.
- Foreign investors are required to buy new properties.
- Thousands of investors have committed to buy a property off the plan.
What happens if you sign a contract to buy a property but you can’t get the rest of the funds together when it’s time to settle? You lose your deposit, typically 10% of the purchase price, and you can be sued for losses incurred by the developer.
Thousands of investors are likely to lose their deposit because of this combination of risky investment, fiscal policy and banks changing the rules.
The banks ‘broke up’ with foreigners
Once upon a time the foreign investor market was too good to be true for the banks. Wealthy customers, big deposits, high incomes and multiple properties. Oh, and let’s not forget that foreigners probably don’t know if their interest rate is competitive or not. What more could a bank want?
But then things changed.
One by one the banks began to break up with foreign investors.
CBA was the smartest of the bunch and has avoided the foreign investor market for over five years. On 18 April, they announced restricted policy for temporary residents living in Australia, the close cousin of foreign investors.
Westpac and St George on the other hand had long embraced foreign investors. They’ve enjoyed huge numbers of applications over the last couple of years and only last year began to get stricter on investors and announced further changes in March. The final straw came on the 26 April when they pulled the pin altogether and announced they no longer accept foreign investors.
ANZ technically allows foreign investors to borrow up to 70% of the property value. However, they have strict foreign income and identification requirements which means that foreigners have to meet face to face with the bank or a mortgage broker in order for them to get approved for a mortgage.
In other words, ANZ isn’t a viable option for the huge number of foreign investors and will probably pull out soon anyway as nobody wants to be the last man standing.
The smaller banks such as Suncorp, BankWest, ING and ME bank aren’t interested in foreign investors and haven’t been for quite some time.
Why? It’s not because of some patriotic urge to keep property ownership in Australia. It’s actually something far more sinister.
The question on everyone’s lips: Will the market crash?
If you’re a struggling first home buyer then you’ve probably got your fingers and toes crossed in anticipation. However many experts think this is unlikely to cause a crash.
Inner city suburbs and new areas with lots of developments could take a hit to their prices as large numbers of new units come onto the market. It’s unlikely that high quality, established suburbs would be affected.
It’s also possible that some property developers will get into trouble when their new units don’t sell as planned. It all depends on their situation, some developers will benefit from keeping the investors deposit!
What if the construction industry does become a bit unsteady? If you remember 2007 the government used first home buyers grants to quickly bring confidence to the market during the GFC. If I was in the government then that’s exactly what I’d do to stabilise the property market.
Is this really the End for foreign investors?
Although it sounds very pessimistic with the change in the banking policies for some of the foreign investors, some institutions will still look at the scenarios on a case by case basis.
NAB just reviewed their policy and announced they will still lend 60% of the property value and would use 60% of any foreign income. Although they have strict income verification requirements, foreigners can still get loans approved if you have a reasonable amount of deposit and income.
Similarly, Citibank is still up for overseas lending and allows foreigners earning in currencies such as USD, UK Sterling (GBP), Singapore dollars (SGD), Hong Kong Dollars (HKD), New Zealand Dollars (NZD) and a few others.
So if you are caught under the above scenarios, come and talk to us by calling (02) 9299 4520 or email to [email protected] as we might be able to assist you.