# Can you buy Australian property with funding from a foreign bank?



## Spineli (30 April 2008)

Would anyone know if there is a definitive answer to this question?

i.e. Is it possible for an Australian resident to purchase Australian property with funding from a foreign bank? (obviously to make benefit from interest rate differentials)


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## tech/a (1 May 2008)

Spineli said:


> Would anyone know if there is a definitive answer to this question?
> 
> i.e. Is it possible for an Australian resident to purchase Australian property with funding from a foreign bank? (obviously to make benefit from interest rate differentials)




Yes.
But you'll need to be aware of exchange rates.
Borrowing off shore killed many great deals in the 80s.


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## BradK (1 May 2008)

Yeah - but if the currency moves 20% against you... think about that. 

do you want to think about possible interest rate rises PLUS exchange rates (which are 100 more times volatile???) 

Stick with an Aussie mortgage, my friend.

but answer is - YES! 

Brad


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## Macquack (1 May 2008)

Spineli said:


> Would anyone know if there is a definitive answer to this question?
> 
> i.e. Is it possible for an Australian resident to purchase Australian property with funding from a foreign bank? (obviously to make benefit from interest rate differentials)




Its called RAMS Home Loans. Borrow money from the USA and lend it to Australians via mortgages (but thats another story).


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## Grinder (1 May 2008)

Looked into it in Japan awhile back, it all seemed too dicey for my liking but new of expats who were doing it.


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## numbercruncher (1 May 2008)

Yes alot of people have got burnt in the past doing this, I guess you can take out currency hedges etc, I beleive tons of Farmers went to the wall a few years ago with it.


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## Spineli (1 May 2008)

lol @ the RAMS mortgages comment. 

Thanks for your replies.


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## Muschu (1 May 2008)

What if you were an Australian citizen living in, and having a permanent position, in the USA?


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## vishalt (1 May 2008)

Muschu said:


> What if you were an Australian citizen living in, and having a permanent position, in the USA?




Then you'd borrow off a US bank? Think about it, if you had a US dollar becoming more worthless by the day and you were converting it to pay back an Aussie bank, you'd be crapped on right?

US banks lend to anyone, anyway, even people who can't afford homes.


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## nioka (1 May 2008)

numbercruncher said:


> Yes alot of people have got burnt in the past doing this, I guess you can take out currency hedges etc, I beleive tons of Farmers went to the wall a few years ago with it.




 This is a sad fact and I have my bank records to prove it. (Didn't go bankrupt but lost a lot). I borrowed $350,000 in a foriegn currency and had to repay $990,000 because of a devalued Aussie$ compared to the Swiss fr.  The AUD is very strong, paticularly against the USD at the moment but that may not last, probably will not last. Paying for something in Australia now with USD could end up very very expensive.


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## theasxgorilla (1 May 2008)

BradK said:


> Yeah - but if the currency moves 20% against you... think about that.
> 
> do you want to think about possible interest rate rises PLUS exchange rates (which are 100 more times volatile???)
> 
> ...




Indeed you can...and when people were bitten by this back in the 80s Microsoft Excel was nothing more than an itch in Bill Gates' pants.

400,000k AUD HOUSE

20% down, 80% mortgage

80k in cash, 320k in mortgage


Fixed for 5 years 9%, interest only, $2400 AUD per month (ANZ Aust, approx)

Fixed for 5 years at 5.3%, interest only, $1413 AUD per month (ING Netherlands, approx)

AUD getting stronger...

$1413 AUD per month, or 834 EUR (0.59) (AUD weak), 320k mortgage in AUD

$1296 AUD per month or 834 EUR (0.65) (AUD strong - 10% increase), 290k mortgage in AUD

$1142 AUD per month or 834 EUR (0.73) (AUD very strong - 25% increase), 258k mortgage in AUD

AUD getting weaker...

$1516 AUD per month, or 834 EUR @ 0.55 (AUD very weak - 7% decrease), 343k mortgage in AUD

$1668 AUD per month, or 834 EUR @ 0.5 (AUD extremely weak - 15% decrease), 377k morgage in AUD



Assumed difference between total mortgage costs over 5 years, between ANZ Aust vrs ING Netherlands (not accouting for maint and other holding costs like rates and insurances, which presumably you could pay in AUD).  Net effect assumes you're not forced to sell and does not calculate for potential compounding interest earned on windfall between AUD mortgage and EUR mortgage.

If AUD/EUR went to 0.5 tomorrow and stayed there: $43920 AUD, net effect: 333k AUD mortgage

If AUD/EUR went to 0.55 tomorrow and stayed there: $53040 AUD, net effect: 290k AUD mortgage

If AUD/EUR stayed at 0.59: $59220 AUD, net effect: 261k AUD mortgage

If AUD/EUR went to 0.65 tomorrow and stayed there: $66240 AUD, net effect: 224k AUD mortgage

If AUD/EUR went to 0.73 tomorrow and stayed there: $75480 AUD, net effect: 183k AUD mortgage


None of this accounts for what the house price does during this time and if you ended with an LVR which the foreign bank wouldn't accept and asked for more cash or foreclosed.  These are the biggest risks, I think.  Still, even in the worst case scenario, assuming no fall in the value of the house in AUD, the LVR is at 95%.

None of the scenarios are realistic, but it give a range of possible outcomes converted to actual money values.  Food for thought.


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## Macquack (1 May 2008)

vishalt said:


> US banks lend to anyone, anyway, even people who can't afford homes.




That's because they _*create it out of thin air*_.


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## Muschu (1 May 2008)

vishalt said:


> Then you'd borrow off a US bank? Think about it, if you had a US dollar becoming more worthless by the day and you were converting it to pay back an Aussie bank, you'd be crapped on right?
> 
> US banks lend to anyone, anyway, even people who can't afford homes.




I am not pretending to know any answers and am certainly not a financial whiz.  
Let's assume the borrower, with a permanent position in the USA and also an Australian citizen, is a high income earner.  
Also let's assume dollar parity.
What is the current home loan rate in the US as opposed to here?
Wouldn't the US bank's issue be more one of loan security?


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