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Mortgages and their application process, in Australia and New Zealand, are fairly similar. Mortgage brokers are often used, loans are offered at a percentage of the value of the property, and variable interest rates are normally the most popular for customers.

Discussed below are the similarities and differences between the two countries when buying property. This includes information for NZ citizens and NZ permanent residents looking for an Australian Mortgage.

New Zealand citizens and permanent residents

Residents of NZ can buy through a broker, or deal directly with a bank or lender when looking at real estate in their own country. Variable and fixed interest rates are available and can be fixed for up to 5 years. They can also qualify for a loan of up to 4 times a gross annual income.

The term of a loan is up to 25 years for most financial institutions. Some lenders calculate a UMI (uncommitted monthly income) when assessing applications. This is a minimum surplus the banks would like borrowers to have after living expenses and repayments are deducted.

If you are looking for property in Australia you can read below, and contact us to find out more. You can call us on 1300 889 743 (when outside Australia call +61 2 9194 1700), or you can enquire online.

Buying Real estate in Australia, for Australians

Most of the application process is very similar to that of NZ. Mortgage brokers are similar, as are the interest rate terms. The UMI is also calculated by banks and lenders to help determine what percentage value of the property can be borrowed.

Differences between loans include the term of the mortgage. In Australia it is common for loans to be up to 30 years in length. Loan-to-value ratio (LTV) is known as the LVR in Australia. However, they both indicate the % value of the property a bank will loan.

Gross income is important. However it is more obviously taken into account in NZ, whilst in Australia the overall financial status of a borrower is more commonly expressed.

What is the Special Category Visa (SCV)

This is a visa that citizens of NZ automatically qualify for when they visit Australia. They are treated in the same fashion as Australian permanent residents when buying real estate. NZ permanent residents have qualified for this in the past, however currently only NZ citizens are eligible.

An SCV holder is eligible for the First Home Owners Grant (FHOG), unlike most foreign citizens and temporary residents. They also do not have to apply for Australian Government approval from the Foreign Investment Review Board (FIRB). Permanent residents of NZ must apply for FIRB approval, as it determines the level of foreign investment within Australia.

NZ permanent resident loan applications for Australian property are assessed dependening upon their visa status within the country. They are more likely to receive a temporary resident mortgage.

How much can be borrowed in Australia and NZ?

In both countries up to 95% of the value of the property can be borrowed (95% LVR in Australia, 95% LTV in NZ). However restrictions will apply for NZ permanent residents in Australia, and unless they are buying with an Australian spouse or partner, they will not be eligible in Australia. Foreign citizens and temporary residents usually borrow at 70% to 80% LVR in Australia.

Borrowing over 80% LVR involves extra costs in both countries. In NZ this is either a low-equity premium, or mortgage indemnity insurance. These are a lump sum cost that can be paid up front or added to the mortgage. In Australia this is known as lenders mortgage insurance (LMI). It protects the lenders if a borrower defaults on their repayments.

Apply for a loan today!

Here at the Home Loan Experts, our mortgage brokers are specialists in loans for New Zealand citizens and permanent residents. If you have a property in mind and would like to know more, contact us on 1300 889 743 (when outside Australia call +61 2 9194 1700) or enquire online.

If you have been considering investing in real estate, you can use the National Rental Affordability Scheme. However, before investing using the NRAS, here are some facts you should keep in mind.

This program represents a long-term commitment on behalf of the Australian Government to make rental housing more affordable. Founded in 2008, it addresses the fact that there was previously very little affordable housing available for those seeking to rent a dwelling.

The tax rebate motivates investors to build and rent homes to people with low or moderate income levels. It makes affordable rental housing available while also encouraging domestic real estate investments.

There are substantial tax savings associated with the NRAS Incentive. Businesses, individuals and community organisations can expect to save substantially. They must provide dwellings that rent at a 20 percent savings compared to the prevailing market rate, but they can expect to save up to almost $10,000 in taxes.

A flexible program, NRAS is open to several types of investors. Financial institutions, private developers, non-profit organisations, community housing groups and independent investors are all welcome to participate. Managed by the Department of Families, Housing, Community Services and Indigenous Affairs, the tax savings offered by this program can help you get a mortgage on investment rental properties. The tax rebates are available for ten years. After the program expires on a property, it converts to your full control and ownership.

You should strongly consider the disadvantages of participating in this program. Designed to help lower-income renters, you will have to rent the property to people in low to moderate income brackets at a 20 percent discount from market rates. You will not receive as much money every month as you might with another property, and there will always be the risk that your renter might not be able to pay. Additionally, you will have to supply a tenancy manager of the dwelling to ensure all requirements are met.

There are strict requirements for creating a NRAS approved dwelling. Firstly it must be a new rental; the program will not approve any dwelling previously used as a rental. It should have a separate lockable entrance for independent entry, and it must have proper facilities for the bathroom and kitchen. Mobile dwellings are not considered appropriate and will not be approved.

The NRAS program is a valuable tool for people trying to start investing in real estate and rental properties. The fine print of the program should be fully understood, including the reduced rental rates and stringent requirements where the property is concerned. Given the limitations, you may decide that avoiding this program and using a traditional loan is the better choice.

Talk to experienced finance professionals to determine which is in your your best interests. These should include your accountant and your tax advisor. When applying for an NRAS mortgage you should use a specialist mortgage broker that has access to many banks and lenders. This enables them to find you the best consortium with the lowest interest rates.

If you have already set up a Self Managed Super Fund (SMSF), you have a regulated superannuation (super) fund with an established trust, an Australian business number, an ATO tax number and a bank account.

Moreover, you began a super fund of sufficient size (more than $200,000) to pay the initial costs of establishment and maintenance of the fund – $1000 to $1500 a year.

Managing SMSF Trusts

Here are some initial tips about administration and ways to manage your trust:

• You must fulfill all your administrative obligations including tax obligations, preparation all financial statements and maintain complete records.
• As required by the ATO, you should retain a competent auditor to assist you.
• You should know and keep up with the laws to comply with changing government regulations.
• Keep in mind it is illegal to prematurely access a super fund unless all conditions are met.

Investment Strategies

Defensive investments such as cash and bonds present little or no risk of losing money. Although returns may seem relatively high, the effects of inflation and taxes will lower the net return. All defensive, safe investments will never provide long-term capital gains.

The purchases of shares or property represent a capital growth investment and usually provide tax advantages. With capital growth investments, the increase in value is expected to grow faster than inflation and thus create real wealth.

However, growth is not guaranteed. In particular, share values will vary greatly over the investment period and will exhibit many ups and downs. Each year, gains or losses will be uncertain and could significantly differ from long-term estimates. Of even greater risk is the possibility that certain assets may lose value, never to regain it.

Historically, the increase in property values has proven to usually surpass inflation. Of course, again, this growth is not guaranteed. However, investment in commercial or residential rental property can provide a steady flow of income – purchased outright or as an investment of additional borrowed money in the form of a mortgage loan.

Laws Restrict SMSF Borrowing For Assets Such As Property

Laws restrict the types of assets for which self managed super fund trusts can borrow money. These laws also restrict the lender’s recourse if super trusts cannot meet their repayment obligations. Restrictions include:

• The asset is one the SMSF could legally acquire without borrowing.
• The asset is held on trust by a Security Trustee (Security Custodian) for the SMSF, and the SMSF acquires legal title from the Security Trustee after the loan repayment.
• The SMSF acquires an immediate beneficial interest in the asset.
• The lender has recourse against only that one asset. In the case of default, the lender is not able to place a claim on any other fund assets.
• The borrowing arrangement is for a “single acquirable asset.” In a subdivision, each title is a separate asset.

How Much Can You Borrow?

A majority of lenders consider loans to finance the purchase of investment properties for super funds as a small market. With the lender’s recourse limited and the complexity of loans to super fund trusts, many lenders consider a SMSF mortgage a low profit and high-risk investment.

Although an SMSF loan with a loan to value ratio (LVR) of 80% (80% of the value of the property) is possible, most lenders restrict LVR to 75% or less. LVRs of up to 70% are available for non-specialised commercial property. A few lenders do offer discounts.

How Will a Bank or Lender Assess My Loan?

Applicants must prove that the SMSF has sufficient trust income to support the loan. This value is based on the previous two years of tax returns. This amount is combined with the proposed rental income to determine if income is sufficient to service the debt.

Understanding the complexity of a SMSF loan is difficult for borrowers and lenders. As with any financial transaction, consult your financial advisers and include a mortgage broker experienced with the laws, restrictions and available lenders. An experienced mortgage broker that offers SMSF loans with access to many banks and lenders knows their assessment criteria and where to find the best interest rates.

Studio apartments are becoming more popular with people who wish to live closer to the city and who do not have large families. But are studio apartments easy to finance? It really depends on where you are buying, how much you have saved as a deposit and how big the apartment is.

Studio apartments

Studio apartments, ‘bed sitters’ or ‘bedroom apartments’ differ from regular apartments in that they do not have any dividing walls that separate living spaces. Most of them simply have a small kitchenette which is included in the same room. There are no bedrooms and the apartments are quite small in size, with most of them around 40 m².

What are the lending guidelines?

Lenders have very specific rules when assessing whether people can borrow to finance to a studio apartment. If the property is less than 18 m², you will not be able to borrow.

If the apartment is 18 m² to 40 m², then the banks may lend you up to 80% LVR. However, where it is 40 m² to 50 m², most banks will lend you up to 90% of the purchase price. Additionally, depending on your financial situation and your income, some banks will allow you to borrow 95% LVR.

If you the apartment is bigger than 50 m², most banks will lend 95% of the property value. However, you must have strong finances.

If you are a low doc borrower then you will only be able to borrow for apartments over 40 m².

Note that if you are borrowing to buy a 1 bed room unit that is over 50m², standard lending guidelines will apply. This is primarily because one bedroom units, with separate living spaces attract a bigger market and are more sellable in the banks eyes.

What do the lenders consider?

As well as the size of the apartment, the lenders look at whether the unit has an internal living area, not including a garage or car space.

Banks assess your ability to borrow based on your income, your employment status, whether you are providing any genuine savings, as well as a variety of other factors.

If you doubt your ability to qualify for a loan based on the bank’s lending criteria or you need to borrow 100% of the purchase price, you may wish to consider getting your parents to guarantee your loan, using their property as security.

However, your parents would need to be made aware of all the risk associated with this arrangement.

Are studio apartments popular?

Whilst most families live in larger apartments or houses, studio apartments are very popular with singles and couples that don’t need large living spaces. For most young men and women who have moved out of home, many bedrooms are unnecessary. Additionally, those that work many hours may spend minimal time in their apartment and thus, have no need for multiple living spaces and outdoor areas, as they are rarely used.

Studio apartments are also popular with investors. Many like to buy these apartments in inner city areas and rent them out.

Advantages of buying a studio apartment

These unit types are highly affordable and often in some of the most sought after city locations. They are generally close to amenities and for investors, they generate good rental income.

Disadvantages of buying a studio apartment

One of the major disadvantages of this property type is its size. They are quite small and generally in condensed apartment blocks, so noise can be an issue.

As the apartment is in a studio complex there may be annual rates that need to be paid. These can amount to quite a significant sum, depending on where you live and the applicable charges.

Purchasing this property type

If you think that you can afford to finance this property, speak to a mortgage broker and apply today. This may be your solution to affordable city living or the investment property that produces great returns!

Borrowing with a rental guarantee income

A borrower source of income is one of the prime factors that the banks take into account when determining whether they should lend to you. This is because, they can determine if you are equipped to repay the loan amount, based on your earnings. But, in today’s society, income is increasingly varied.

Not everyone works 9-5 and earns a standard salary. Some people are contractors, earn high bonuses, receive a shift allowance or work on a commission basis. Then there are those that receive rental income, through a rental guarantee.

But do the banks accept rental guarantees as a legitimate form of income? If you are looking to borrow, based on this income type, please read on.

Rental guarantees: what are they?

As the name implies, a rental guarantee is where the owner of the property has a guaranteed right to receive rent for a fixed period, without worrying about finding alternate people to fill gaps in occupancy, or late/missed payments.

What kinds of properties have rental guarantees?

The main property types with guaranteed returns are generally leased to government agencies, who then rent the properties out to certain tenants. Some of the properties include ‘housing commission’ rentals, to those whose rent is subsidised by the Department of Housing.

Other properties include Defence Housing Australia rentals, which are managed by the Department of Defence.

Additionally, some developers have a rental guarantee for off the plan units or apartments.

Some display can also be purchased by an investor and then rented by a builder for the duration of its use as a display home. This is generally until all the houses in the surrounding area are sold off.

How much will the banks lend?

Investors that receive a rental guarantee may be entitled to borrow up to 95% LVR of the property that they wish to purchase. If you are a low doc borrower, you may only be entitled to borrow 80% of the purchase price.

Are the banks stricter than usual?

As a rental guarantee is not a conventional form of income, banks have more conservative lending practices. Most banks believe that whilst the income is fixed, there is an added risk involved due to the technicalities associated with the assurance.

Most rental guarantees are also subject to a caveat on the property that protects the tenant’s interests. This means that if an investor wants to sell his property tomorrow, but there is a rental guarantee in place, the new buyer must be willing to continue renting that property out for the term of the tenancy.

Consequently, these properties may be harder to sell and may sit on the market for lengthy periods before attracting a buyer.

Advantages and disadvantages of a rental guarantee

A rental guarantee is great for investors who want to rent a property out, but are concerned that their tenants will not pay their rent on time or will prematurely terminate the lease.

The guarantee prevents these situations from occurring and therefore, the investor is not at risk of losing money. These guarantees are particularly strong when given by government agencies and departments

However, rental guarantees are still subject to cancellation, therefore, most lenders may not consider the rental guarantee, despite the lengthy term of the lease.

Banks are more likely to consider the current market value of the rent and determine the rental income you receive, based on that value. They are less likely to consider a rental guarantee.

To maximize your chances of approval, it is important to have other income sources, in addition to a rental guarantee.

Whilst many buyers want a home that they can move straight into with no hassle or stress, others prefer buying houses which they can renovate and style to their taste. Although renovating can be great for couples, families who want to change aspects of the houses design or layout, investors are also attracted to ‘renovators’ as they are generally much cheaper than properties that don’t require any repair work. However, if you found the perfect house to renovate, will the banks still lend to you, despite its current state. Read on to find out more.

Can I borrow if I plan on renovating?

Most banks and lenders have strict lending policies and guidelines. As a result of their conservative lending practices, they are less inclined to lend to borrowers who are using a dilapidated property as security, despite your intention to renovate.

Why do the banks view ‘renovators’ this way?

Homes that need extensive repairs are valued less than finished dwellings for obvious reasons. As such, if you were to buy a property with the intention of renovating, and then run out of funds during the renovation, or simply decide not to continue, not many people would be willing to buy this property. Accordingly, the risk of loss for the banks would be high. Luckily there are still some banks that will lend to those who want to renovate.

How much will the banks lend?

If you have bought a property and then decided not to renovate, you may be entitled to borrow 80% of the property value. However, this largely depends on the current state and condition of the house.

Where the property needs on minor renovations, most banks will allow you borrow up to 90% LVR. However, where the repairs are small cosmetic renovations to add aesthetic value to the property you may be entitled to borrow up to 95% LVR, plus additional funds to pay for the renovation.

If the property that you purchased requires extensive renovation, the banks may lend you 80% of the purchase price. However if you have hired a builder, this amount may be increased to 95% LVR, as well as the cost of renovating.

However, where you have to knock down and rebuild the existing home, the banks will not include the value of the property and you will generally be entitled to borrow 90% of the land value, plus costs of building, if you have hired a builder.

If you are considering doing the renovations yourself, without using a licensed builder, then you may only be allowed to borrow 60% LVR, plus any funds needed to finance the renovation.

What if I’m a low doc borrower?

There are quite a few lenders that will only allow you to borrow 60% of the purchase price. However, some banks will increase the amount you are able to borrow, to up to 80% LVR, plus the cost of building.

Remember!

The amount that you can borrow mainly depends on the type of home you and buying its current condition. This is one of the main factors that the banks take into account when lending to borrowers who wish to renovate.

Where the property is in such a good condition that it could be put on the rental market, you may have a better chance of a lender that will use general lending guidelines. You may be entitled to borrow up to 100% of the purchase price! If you are a low doc borrower, this amount is reduced to 80% LVR.

Risks involved in renovating

Taking on a home renovation involves an element of risk. This is why you need to ensure that you have budgeted correctly and borrowed enough to cover any added costs. If you cannot finish the renovations without additional funds, you are likely to encounter issues.

The house will be difficult to sell, or will sell undervalue, resulting in significant loss to the banks. This is why you need to plan everything out before taking on a project. If you do, things are more likely to go smoothly and you can start custom designing your own home or fix it up to sell for a neat profit.