Borrowing With A Japanese Income Currency

Buying an investment property in Australia as an expat in Japan

• Home loan type: Expat home loans for Australians living in Japan
• Customer goal: To purchase an investment property back home in Queensland and find a lender that can accept 100% of his Japanese currency income.
• Loan amount: $595,000.00 (60% of the property value)

The story

Meet James, an Australian expat who’s been living and working in Japan for the past 8 years.

He’s married to a Japanese citizen and has 2 young kids.

As a senior management staff at a premier financial services firm in Japan, he earned a base income of JPY 711,000 (AUD $115,748) plus a yearly cash allowance of JPY 352,000 p.a.(AUD $57,316).

To start building their asset porfolio, he wanted to purchase an investment property in Queensland (QLD).

In addition, he wanted a competitive fixed-rate loan that allows for unlimited extra repayments.

Australian expat mortgage broker, Manish Rana got the call and quickly went to work.

The pre-assessment

After establishing James’ objective and need, he poured through James’ bank transaction statements, payslips, tax returns and credit report to identify anything that the lender may object to.

There were several issues to address from the get-go:

• Foreign currency income: We needed a lender that can accept a Japanese currency (JPY) income as well as accept 100% of his base income to help maximise the borrowing capacity. Most expat lenders will typically only use 60%-90% of the foreign income to account for exchange rate fluctuations.
• Cash allowance: A significant part of James’ income came from cash allowances, this created another hurdle as most lenders either completely ignore them or shade them to 80%.
• Credit report: As Japan doesn’t have a consumer credit rating system as we have in Australia. It is very difficult (almost impossible) for Australian expats in Japan to get credit. As a result, most expats do not even have a Japanese credit card. Lenders use the credit report in their assessment to verify the character of a borrower.
• Japanese income tax statements: James’ income tax statements were in Japanese. An English translation was required; however, not all lenders accept translated tax returns.
• Living expenses verification: Verifying the living expenses by analysing James’ bank account became difficult as all the bills, utilities etc. were in his wife’s name. As Japan is still largely a cash-based society – he typically withdrew cash which his wife used to pay the bills.

The initial borrowing power assessment

First, after thoroughly analysing his payslips, cash allowances, voluntary and involuntary deductions, Manish established his verified assessable year-to-date income.

After that, our broker ran the serviceability assessment (borrowing power) with a couple of lenders that used 100% of his base foreign currency income to maximise his borrowing power.

Then, he was also able to use the proposed rental income from the investment property in the borrowing power calculations.

Doing so allowed him to use the full 4% or $34,000 p.a. as rental income in the assessment.

The solution: Mitigating the credit issues

Our broker went to work on mitigating the potential credit issues he had previously identified:

• Cash allowance: He got one of the better expat lenders to use 100% of James’ monthly cash allowances which amounted to approximately $4,776 p.m in the assessment. This was done by providing evidence that the allowances were ongoing, verifiable and were part of the employment contract.
• Credit report: He also provided the lender with James’ credit history, which was impeccable albeit with no recent activity. He had an Equifax Score of 1100 before the move. This established his character as a good borrower and explained the lack of credit activity in his file.
• Japanese income tax statements: He then organised an authorised translator to translate the Japanese income statements.
• Living expenses verification: Since the monthly living expenses couldn’t be verified via bank statements, he got the lender to accept a signed ‘Living Expenses Sheet’ declaring the cash spend.

Prudently before submitting the deal, he ran the scenario directly with the lender’s credit department.

This ensured that all supporting documents such as the translated income tax returns, cash allowances, lack of credit activity and the living expenses declaration were all acceptable to the lender.

Only once our broker had the green light from the lender did he make the recommendation to James, which he accepted, and finally the deal was submitted.

The happy ending

James got approved for a 2 year fixed (Principal and interest) loan which reverts back to a variable product with no annual fees.

Best of all, the fixed rate loan allowed for unlimited extra repayments, which is typically limited to $10,000 p.a. with most fixed products.

He now owns an investment property in Queensland and has already started looking to add another one to his property portfolio.

Borrowing as an expat living overseas can seem daunting when you don’t have experts on your side.

Are you an expat looking to buy an investment property?

Before you start looking for your next investment property, consult with one of our award-winning specialist mortgage brokers.

We specialise in aussie expat home loans.

Give us a call on 1300 889 743 or fill in our short online assessment form today.