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Australian Mortgages

Loan to Value Ratios have reduced for foreign borrowers

If you are an Australian expatriate and are intending to purchase a property in Australia, you should first find out how much you can borrow.The reason is that, in recent times, Australian borrowers have tightened up lending requirements in relation to foreign borrowers, including Aussie expats.

Whereas you may have previously been able to secure a loan based on a ‘Loan to Value Ratio’ (LVR) of 70%, many lenders have reduced the maximum LVR to 60%.

If you have already made an ‘off the plan’ purchase with the intention of borrowing 70% of the value of the property on completion, you should seek finance well before the date of settlement arrives.

Valuation of property may change between paying your deposit and settling on the property

Because of the volatility of property markets and the more conservative approach banks are taking to lending, some investors in Australian property have found that the bank valuation prior to loan funds being extended is less than the original purchase price.A lower valuation will simply mean that the investor cannot borrow as much money as they thought they could.

The combination of a lower LVR being applied to a loan application and a valuation below the original purchase price could spell a ‘double whammy’ for investors.

In a worst case scenario, some investors will simply ‘walk away’ from their deposit, but this will simply mean the property will be sold to another investor, probably at a discount to the original purchase price.If there are enough investors in a ‘distressed sale’ situation, the value of property in that particular area could suffer.

On the other hand, if you are looking to buy property in Australia, and want to find a bargain, then you consider buying in areas where there are distressed sellers – such as inner-city areas of Brisbane and some inner cities of Melbourne.If you were to take on this strategy you would should be aware that it might take a while for property prices to recover.

Consider engaging a mortgage broker

If you don’t have an existing relationship with an Australian financial institution or you want to shop around to get a better deal, you might consider engaging the services of a mortgage broker.

A mortgage broker is able to quickly shop the market and they are constantly informed by the banks as to ‘special deals’ that are on offer.

Mortgage brokers are paid by the lender rather than the borrower, so there is effectively no cost to you to engage the services of a mortgage broker.