Why cant we borrow from foreign banks?

[Aaron_C]

Common man, it's the opposite!
As the AUD rises money abroad loses value.

No, you are confused. If you borrow 1 million AUD under 2 different exchange rates:

1. If AUD/USD was 0.50 - this equals to you borrowing US$500,000. On 5% interest rates that is US$25,000 per year, which is A$50,000 per year.

If the AUD/USD then went up to 1.00 then you would be still be paying US$25,000 per year, but because of the exchange rate you only need to fork out A$25,000. So it is better for you.

2. If AUD/USD was 1.00 - this equals to you borrowing US$1,000,000. On 5% interest rates that is US$50,000 per year, which is A$50,000 per year.

If the AUD/USD then went down to 0.50 then you would still be paying US$50,000 per year, but because of the exchange rate you now need to pay A$100,000 per year, double what it was before. This amplified even more if it is a P&I loan because the principal has also gone up.

 

[Peter_Tersteeg]

It is possible to borrow money in foriegn currencies to invest in property in Australia. I've known a few people who have borrowed in Yen for property here. There tends to be a few criteria:

* LVRs are quite low. In the cases I've seen they had to be kept around 60%.
* The loans were P&I, amatorising over a much shorter period of time, again to keep the LVR low.
* The borrower had to be paid in the same currency that they were borrowing. In these cases, the borrower lived in Japan and was paid in Yen, hence there was no real currency risk which Aaron has described.

 

[pennyk]

I know someone who works for a Japanese bank... his experience is that every decision takes forever and no decisions are made in Australia. I would think that it would be very frustrating to apply for a loan with them

 

[Intrinsic_Value]

Maybe parity is the new 0.75? I dunno.

It depends on ones timing.
Things change, yet things essentially remain the same.

If ones horizon is long enough, US$0.75 is still the long term parity.

But consider this, if US$0.75 is the long term parity, current exchange rate is $1.07, this represents a discount of nearly 30%.

Add that 30% onto a long term investment return and its still quite significant. Say over 10 years.

Remember back pre 2000, when international share investing was all the rage? why because the 'historical performance' in AU$ was so good.
Well from 2000 to 2012, the historical performance has been pretty p**s poor, not just due to the international markets going nowhere, but because of the appreciation of the AU$.

Could markets be in the process of reverting themselves?
Time will tell.

By the way, what was the exchange rate AU$/US$ back in the late 1970's????


This post in no way constitutes anyform of investment advice. Its only purpose is to make people think.

cycles come cycles go.

 

[sydprop]

I would like to know why the non-resident rates from aussie banks are 100bps less than what residents pay....

Haven heard somethings about witholding tax but...

Ideas?

Why cant we borrow from foreign banks? Are there any foreign banks operating in Australia that lend on residential properties? Is there a law that says you can only lend money to Australians at a level above the RBA rate?

If most loans are sourced from overseas. I still cannot understand why our interest rates are at 7% and other places like the United States its 2-3%. Any comments appreciated.

 

[Peter 14.7]

These threads illustrate why the Greece issue is so bad.

If Greece dumps the Euro and brings in say the Dracma if will be say nominally 1 to 2

So you had a debt of $100k Euro you no have a debt of $200k Dracma. You were earning $1000 Euro a week which is now $2000 Dracma. But becasue of economy you cannot make $2000 but only $1000 Dracma. You debt has doubles. So you walk and don't pay and some other country get contagion.

Peter

 

[Intrinsic_Value]

These threads illustrate why the Greece issue is so bad.

If Greece dumps the Euro and brings in say the Dracma if will be say nominally 1 to 2

So you had a debt of $100k Euro you no have a debt of $200k Dracma. You were earning $1000 Euro a week which is now $2000 Dracma. But becasue of economy you cannot make $2000 but only $1000 Dracma. You debt has doubles. So you walk and don't pay and some other country get contagion.

Peter

I covered this more than a year ago and its still valid.

Greece aint going to no dracma, until its structural deficit is under control. For all said and done its getting better, but the structural deficit is still negative.

Wait for it to become positive, then see the change in the negotiation table.

 

[mrmonopoly]

Just curious if anyone here has actually ever refinanced from a foreign bank with actual success? Aside from the high currency fluctuation risks are there any other implications to take into consideration? I.e. Tax etc

I'm currently working overseas (UK) and speaking casually with a broker from Capital Private Finance earlier today who says whilst rare, he does have one Hong Kong based lender on his panel who is willing to lend against existing Australian resi property at the grand old interest rate of 2.29% .

Now providing they dont change their policy and if the Aus $ falls back more in line with trend, then surely this must be worth investigating further????

P.s. I am far from an expert on this sort of thing so apologies if I am missing anything glaringly obvious.

 

[Aaron_C]

Just curious if anyone here has actually ever refinanced from a foreign bank with actual success? Aside from the high currency fluctuation risks are there any other implications to take into consideration? I.e. Tax etc

I'm currently working overseas (UK) and speaking casually with a broker from Capital Private Finance earlier today who says whilst rare, he does have one Hong Kong based lender on his panel who is willing to lend against existing Australian resi property at the grand old interest rate of 2.29% .

Now providing they dont change their policy and if the Aus $ falls back more in line with trend, then surely this must be worth investigating further????

P.s. I am far from an expert on this sort of thing so apologies if I am missing anything glaringly obvious.

Sounds good if the AUD drops below trend. But by that time I'd expect the interest rate differential to be a lot less.

 

[evand]

I think the problem would be that foreign banks cannot take a mortgage over Aus residential property en masse. If the borrower defaults, what then?

 

[skatingandgirls]

Why cant we borrow from foreign banks? Are there any foreign banks operating in Australia that lend on residential properties? Is there a law that says you can only lend money to Australians at a level above the RBA rate?

If most loans are sourced from overseas. I still cannot understand why our interest rates are at 7% and other places like the United States its 2-3%. Any comments appreciated.

there is a thing in finance called interest rate parity, which "in theory" means there are no free lunches when it comes to borrowing from overseas. In practice there may be small arbitrage opportunities which when magnified by large sums of money might make it worth while.

 

[Deltaberry]

Why cant we borrow from foreign banks? Are there any foreign banks operating in Australia that lend on residential properties? Is there a law that says you can only lend money to Australians at a level above the RBA rate?

If most loans are sourced from overseas. I still cannot understand why our interest rates are at 7% and other places like the United States its 2-3%. Any comments appreciated.

Because no one has created an app to do it.

 

[Marty McDonald]

Reading this 3 year old thread makes you realise how badly you would have gone in 2012 if you had borrowed in US dollars (unhedged).

Borrow $1,000,000 ozzie at 1.06 USD = USD $943,000 owed
Borrow $1,000,000 ozzie at 0.78 USD = USD $1,282,00 owed