Introduction
In recent years, many people have begun to pay attention to the real estate market in Australia and have entered the market to buy properties. Unless buyers can purchase properties with cash, applying for a mortgage is almost a must for everyone buying a property in Australia. Therefore, obtaining a mortgage for property purchase in Australia is one of the largest financial decisions for many people, involving amounts that may exceed the wealth accumulated by many people in their lifetime. Choosing a suitable property mortgage method in Australia is a common concern for many buyers and must be handled with caution.
Most Hong Kong people have limited understanding of the mortgage methods in Australia, often missing out on investment opportunities. This article will explore in detail three mortgage methods for Hong Kong people buying properties in Australia: applying for a mortgage loan from local Australian banks, applying for Australian property loans through Hong Kong banks, and cashing out existing properties in Hong Kong; and analyse the advantages and disadvantages of each mortgage method, helping readers better understand this method of property purchase financing.
What is a mortgage? What is the definition of a mortgage?
Loans can be divided into unsecured loans and secured loans. A mortgage is a type of secured loan, where the borrower borrows money from a loan institution using the property as collateral. Homebuyers can apply for a mortgage loan from a bank or other loan institution, using the property as collateral. Mortgage loans are typically calculated based on a certain interest rate and term, and borrowers are required to pay a certain amount of repayment to the loan institution every month. If the borrower fails to repay the loan on time, the loan institution has the right to sell the collateral (i.e., the property) to repay the loan.
Method 1: Applying for a Mortgage Loan from Local Australian Banks
Citizens, Permanent Residents (PR), and Temporary Residents (TR) with certain visas or specific income groups can choose to apply for a mortgage from local Australian banks using either Australian or Hong Kong income. As long as the income is stable, the loan-to-value ratio is generally around 70% to 80%, and for citizens, PR, and first-time home buyers, it can even be up to 95%*. Mortgage schemes offered by local Australian banks are more mature than those of other banks or institutions, with relatively lower interest rates, making them more affordable.
If you are not a citizen or PR, some local Australian banks may accept applications from certain categories of temporary residents (TR). You can apply to Australian banks based on your income proof (different visa requirements for Australian income or Hong Kong income). The documents required include the visa duration, job category, and income proof: if you are an employee, most banks require three months of bank statements to prove your income; if you are self-employed, the required documents will be different, with most banks requiring over two years and an accountant's financial statement (annual report) to prove the company's income over the past two years.
*The specific loan-to-value ratio depends on your financial situation and the specific mortgage bank.
Borrowers need to apply for "mortgage pre-approval" to confirm their approximate affordability. There are two types of pre-approval. The first type is a quick assessment by the system, with results available in a few hours. The other type is a complete assessment, which includes a credit check and may also require you to discuss your financial situation with a mortgage broker to ensure a matching mortgage amount.
When applying for "mortgage pre-approval," every banker and broker may require different documents. Most of them require proof of your income and personal debt to ensure your eligibility for a mortgage.
1.Process of Applying for Mortgage Loans from Australian Banks
When applying for a mortgage, you should maintain good financial records for at least the past 6 months.
Prepare a down payment.
Contact a mortgage broker to inquire about the mortgage plans offered by different financial institutions.
Prepare the documents for applying for pre-approval of the mortgage.
Familiarize yourself with the property price you can afford, applicable interest rates, and the estimated monthly repayment amount.
Pre-approval generally lasts for 30-90 days. It can be extended once after expiration, and if it expires again, you will need to reapply.
Once you have obtained pre-approval, you can start looking for properties.
After finding a suitable property, sign the contract and formally apply for the mortgage loan from the bank.
After the loan is approved, a representative lawyer will handle matters such as transfer and registration of the property to complete the transaction.
2.Interest Rates and Suitable Buyer Types for Mortgage Loans from Australian Banks
The four major banks in Australia hold 75% of the mortgage customers in the market, winning with product diversity and extensive service networks. The four major banks offer a range of mortgage plans that can be combined with other financial products and services (bank accounts, credit cards).
The specific loan-to-value ratio for buying a property in Australia depends on the financial institution or bank you choose for your loan product. Generally, the maximum loan-to-value ratio can be 70-80%*. The Alison team recommends consulting your mortgage broker for the specific loan amount.
Investors buying property in Australia through a mortgage can also enjoy various types of repayment methods and interest rates. These include fixed interest rates, variable interest rates, principal and interest repayment, or interest-only repayment. "Principal and interest repayment" is the choice of most people, repaying the loan within 25 or 30 years, with each monthly payment including principal (Capital) and interest (Interest). If you need to significantly increase your cash flow, you can choose Australia's unique "interest-only repayment" method. The interest rate for "Owner-occupier Loan" will be lower than that for "Investment loan," and the application conditions will be more lenient because investors are considered higher-risk borrowers by banks. However, one major advantage of Investment Loan is the tax benefits: mortgage interest can be used as a tax deduction, so investors tend to choose the "interest-only repayment" repayment structure.
In addition, some Australian institutions' mortgage products have hedging account functions. If you have excess funds, depositing them into a hedging account can directly offset the interest on the loan, indirectly reducing the cost of the loan.
Method 2: Applying for Australian Property Loans through Hong Kong Banks
This method is suitable for individuals holding Temporary Residency (TR) visas and overseas Hong Kong residents. Some banks in Hong Kong also provide mortgage services for Australian properties, and the required documents for applying for cross-border loans are similar to those for applying through local Australian banks.
1.Which Hong Kong banks can provide overseas property mortgages?
The following Hong Kong banks offer property mortgages in Australia:
HSBC: HSBC offers global banking services with branches worldwide, providing both floating and fixed rate mortgages. Borrowers can choose between interest-only or principal and interest repayments (up to 3-5 years). The loan-to-value ratio is around 60%, and specific details can be found on the official website: https://internationalservices.hsbc.com/zh-hk/buy-property-abroad/
OCBC Wing Hang: This bank provides mortgages for residential properties intended for investment purposes. The entire loan application process is completed in Hong Kong, without the need to refer to overseas branches, saving considerable time. Please refer to the official website for details: https://www.ocbc.com.hk/personal-banking/zh/index.html
2.Groups Suitable for Obtaining Overseas Property Mortgages through Hong Kong Banks
Hong Kong banks accept individuals with Temporary Residency (TR) and Overseas Buyers status, and they can provide mortgages based on Hong Kong income. Property prices in Hong Kong have been consistently high, while Australian property prices have been steadily increasing in recent years. Rental yields are also favorable. If you plan to reside in Hong Kong but intend to buy investment properties in Australia for rental income, or if you have immigration plans and have obtained Permanent Residency (PR) but already have intentions to invest, you can consider obtaining overseas property mortgages through Hong Kong banks, subject to your financial capability.
3.Considerations for Overseas Property Mortgages through Hong Kong Banks
If you plan to apply for overseas property mortgages through Hong Kong banks, you should be aware that Hong Kong banks are regulated by the Hong Kong Monetary Authority (HKMA). All overseas property mortgages approved by local banks require applicants to pass the Debt Servicing Ratio (DSR) and stress tests based on their monthly income and repayment capacity. The bank will also check the credit records, and the mortgage loan will be recorded in the Mortgage Count record.
If you choose to settle the loan directly in the local currency, you will need to make repayments in foreign currency in the future. Exchange rates in some countries are relatively volatile, and changes in exchange rates will affect your monthly repayments.
Method Three: Cash Out Refinance on Existing Properties in Hong Kong
"Cash out refinance," as one type of property mortgage, is essentially reapplying for a mortgage from the same bank for a property that has already been mortgaged, in order to extract more funds. This practice typically occurs when property values appreciate, resulting in an increase in the loanable amount, allowing homeowners to cash out the excess loan amount.
Investors may consider cashing out by refinancing their existing properties in Hong Kong and investing in Australian real estate. Rental income can help offset repayments, and significant returns can be earned when the Australian property market rises. The interest on your Hong Kong loan can be offset when declaring Australian income tax, yielding multiple benefits.
1.Pros and Cons of Cash Out Refinance on Hong Kong Properties
For overseas investors with properties in Hong Kong, the option to refinance and extract equity for purchasing overseas properties can be appealing. Given Hong Kong's currently low interest rates, compared to higher mortgage rates overseas, refinancing in Hong Kong to fund overseas property purchases can be financially advantageous. This approach allows flexibility in the use of the cash and typically offers lower interest rates. However, it requires owning property in Hong Kong and the amount that can be cashed out is subject to property valuation and outstanding loan restrictions.
*https://www.moneysmart.hk/zh-hk/mortgage/hibor-vs-prime-rate-ms，for specific mortgage interest rates, please refer to individual banks.
2.Summary of Three Methods
Citizen | PR | TR* | Overseas Buyers | |
Common Mortgage Options for Property Purchase | Local Australian Bank Mortgage | Local Australian Bank Mortgage | Hong Kong Bank Providing Mortgage for Overseas Properties | Hong Kong Bank Providing Mortgage for Overseas Properties |
Local Australian Non-Bank Lenders or Local Australian Bank Mortgages (Depending on the Situation) | Local Australian Non-Bank Lenders | |||
Note | Some local Australian banks accept applications for mortgages from specified categories of TR and specific income groups (specific details can be found on their official websites). | For friends who own property in Hong Kong, the common approach is to cash out by refinancing their Hong Kong property and using the funds to pay for the Australian property; alternatively, they can apply for a mortgage from a bank. |
Conclusion
The above are the three most common methods of obtaining mortgage loans for buying property in Australia. It is recommended that investors choose the most suitable mortgage method based on their own circumstances. With the steady development of property prices in Australia, purchasing property overseas has become an increasingly common and high-return investment method for Hong Kong residents. Choosing the right mortgage method can greatly enhance the effectiveness of your investment.
We strongly recommend consulting with a professional financial advisor for an initial assessment of your financial situation regarding mortgage applications. If you are interested in learning more, please feel free to contact the Alison team for a customised mortgage solution.
Alison’s Story
Born in Hong Kong an moved to Australia, I have been associated with real estate all my life. As the plane slowly landed on the runway of Melbourne Airport, my life and career also changed to another runway. I changed from a Hong Kong real estate agent to an Australian real estate agent, and successfully obtained the Australian lawyer qualification.
When I was working in a law firm, I was surrounded by highly educated professionals. Even though their wages are very well, and they are absolutely the elites in society, but their lives are full of hard labor, and it’s hard for them to get rich through buying properties.
So I spend all my time and effort on learning financial and real estate investment knowledge, hoping to achieve financial freedom as soon as possible, and let my parents who have worked hard for many years live a good life.
Now I will share with you the knowledge and experience of investing in Australian real estate, and embark on the road to financial freedom together.
Alison Australian real estate information platform
The original intention of Miss Alison to establish investwithalison.com is to provide neutral Australian real estate information through this platform and help investors establish the most suitable investment strategy.
👉Website: investwithalison.com
👉Email: hello@investwithalison.com
👉Linkedin: linkedin.com/in/alisonwongaustralia/
Comentarios