8 Common Mortgage Mistakes Australian Expats Make
Securing an Australian mortgage as an expat can feel like navigating a maze. Between understanding bank policies, dealing with foreign income, and tackling unfamiliar hurdles, it’s easy to make mistakes that can cost you time, money, and peace of mind. The good news? With the right guidance, these pitfalls are completely avoidable.
In this blog, we’ll walk you through the eight most common mistakes Australian expats make when securing a mortgage—and, more importantly, how to avoid them. Whether you’re buying your first property, adding to your portfolio, or planning for your eventual return to Australia, these insights will help you secure the best possible outcome.
- Failing to Understand Your Borrowing Capacity
Many expats are shocked when their borrowing capacity doesn’t match their expectations. This happens because banks assess expat income differently than domestic income. For example, many lenders apply a “foreign income shading” policy, where they only consider a percentage of your overseas earnings to account for currency fluctuations.
How to Avoid This Mistake:
- Work with a lender or broker who understands expat-specific lending criteria.
- Provide clear documentation of your income, including base salary, bonuses, and allowances.
- Understand that your borrowing power will depend on the currency you’re paid in, as some banks won’t accept certain currencies.
- Understand that as an expat, your borrowing capacity will vary significantly between lenders, which is where the expat mortgage broker can be your best resource to identify the most suitable one for you.
2. Not Preparing Your Financial Documents Early
Applying for a mortgage while living overseas adds an extra layer of complexity. Banks require detailed documentation, including tax returns, income proof, and rental income statements. Australian expats often find it challenging to gather these documents, especially if they’ve been living abroad for years.
How to Avoid This Mistake:
- Start gathering documents well before you apply.
- Keep digital copies of important financial records for easy access.
- If you’ve neglected Australian tax filings, speak with an accountant to get your affairs in order.
- Ensure that any translations are actioned where required.
- Ensure that you provide your overseas ID and work visas.
Being prepared not only speeds up the application process but also ensures that your lender has everything they need to assess your application accurately.
3. Ignoring Currency Risk
If you’re earning in a currency other than Australian dollars, you need to account for the impact of exchange rate fluctuations on your borrowing power and repayments. A weakening Australian dollar might reduce your borrowing capacity, while a strengthening dollar could make your repayments more expensive. It’s also important to understand that certain currencies are treated more favourably than others in the eyes of the Australian lenders. For example, major currencies such as USD, GBP, EUR, JPY, HKD and SGD are more commonly accepted.
How to Avoid This Mistake:
- Choose a lender with experience in managing foreign currency loans.
- Ask your lender about the buffers they use when assessing your income.
- Plan for potential currency volatility by maintaining financial reserves.
- If the currency is in your favour, consider the timing of securing your loan pre-approval even before you might need it.
Remember, exchange rates can be unpredictable, so it’s essential to factor in some wiggle room in your budget.
4. Choosing the Wrong Lender
Not all lenders are created equal, and even fewer are well-versed in the unique needs of expats. Choosing a lender that doesn’t understand foreign income or expat-specific challenges can result in delays, rejected applications, or less favourable loan terms. Mortgage brokers who aren’t familiar with working with expats, and the intricacies of Australian expat credit policy may be recommending lenders that result in higher rates or fees, which may be entirely avoidable.
How to Avoid This Mistake:
- Research lenders that specialise in expat mortgages.
- Consider working with a mortgage broker who has a track record of helping expats.
- Compare lenders’ policies on foreign income, credit history, and offset accounts.
- Explore your borrowing capacity with multiple lenders, as you may be amazed at the difference between different lenders.
The right lender can make all the difference, so don’t settle for the first option that comes your way. Some lenders will accept your net income in your country of residence, which can be very powerful in a low-tax country like Singapore or Hong Kong, whereas others will always seek to apply Australian tax rates in addition to shading your foreign income.
5. Overlooking the Importance of Credit History
Your Australian credit history can play a significant role in your mortgage application, even if you’ve been living abroad. Unfortunately, many expats let their Australian credit file lapse or assume their international credit history will suffice. Spoiler alert: it won’t.
How to Avoid This Mistake:
- Check your Australian credit score and report before applying for a loan.
- Consider maintaining at least an active Australian bank account, which may assist in the logistics of applying for the loan and settling the property.
- If your credit history is less than ideal, take steps to improve it before applying.
A strong credit history shows lenders you’re a responsible borrower, which can open the door to better rates and terms. Many Australian expats might forget about Australian credit cards or store loans, so it’s important to work with your broker or bank to close these down before applying.
6. Underestimating Tax Implications
Many expats overlook how tax laws affect their mortgage decisions. For instance, the interest on an investment property loan may be tax-deductible, but this depends on your tax residency status. Failing to structure your loan in a tax-efficient way can result in missed opportunities or unexpected liabilities.
How to Avoid This Mistake:
- Consult with a tax adviser who specialises in expat finances.
- Ensure your loan structure aligns with your tax strategy.
- Stay informed about Australian tax laws, particularly around investment properties.
Understanding your tax obligations isn’t just about compliance—it’s about optimising your financial outcomes. While negative gearing may benefit Australian expats differently to Australian residents, it’s important to be aware that the benefits can still apply and carry forward.
7. Neglecting Loan Structure Options
The structure of your loan can significantly impact your financial flexibility and long-term goals. Many expats opt for a basic loan without considering the benefits of features like offset accounts or split loans. Others lock into fixed rates without thinking about potential changes in their circumstances. With many expats buying their future home but renting it out first, getting your loan structure right can be very powerful for your future financial plans.
How to Avoid This Mistake:
- Explore different loan options, including fixed, variable, and split loans.
- Consider using an offset account to reduce interest costs while maintaining access to your funds.
- Match your loan structure to your financial goals and lifestyle.
Loan structure is not a one-size-fits-all decision, so take the time to understand what works best for you.
8. Skipping Professional Advice
One of the biggest mistakes expats make is trying to go it alone. Navigating the mortgage process from overseas is complicated, and without expert guidance, you risk making costly errors. A professional mortgage broker or financial adviser can save you time, money, and stress by ensuring your application is tailored to your unique circumstances.
How to Avoid This Mistake:
- Engage a mortgage broker who specialises in expat lending.
- Seek financial advice to align your mortgage strategy with your broader financial goals.
- Don’t hesitate to ask questions or seek clarification throughout the process.
Professional advice is an investment in your financial future, so don’t shy away from leveraging expert help.
Final Thoughts
Securing a mortgage as an Australian expat doesn’t have to be a daunting experience. By avoiding these common mistakes, you’ll be well on your way to achieving your property goals with confidence and clarity.
Whether you’re purchasing a home to live in, an investment property, or planning for your eventual return to Australia, the key is preparation. Start early, gather your documents, and surround yourself with the right experts to guide you through the process.
If you’re ready to take the next step or have questions about expat mortgages, reach out to a trusted broker or financial adviser today. It’s time to turn your property dreams into reality—without the headaches.
Ally Wealth Management is the trusted ally in finance for Australians at home and across the globe. As both Australian expats and residents, the founders of Ally have a unique understanding of the common personal financial challenges faced.
Book your complimentary appointment with our team at Ally Wealth Management to discuss how we can help you to achieve your financial goals.
Ally Wealth Management Pty Ltd is a Corporate Authorised Representative of Sentry Advice Pty Ltd ABN 77 103 642 888. Sentry Advice holds an Australian Financial Services Licence (AFSL) No. 227 748.
General Advice Warning: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances, and objectives. We recommend you obtain professional financial advice specific to your circumstances.
