Very important information to read:
This article is intended as a preliminary guide only and refers to some but not all elements required to consider in detail prior to starting any property dealings or due diligence. Property dealings are often complex, especially in foreign countries and we highly recommend you seek independent professional advice...read more...
Most homeowners around the world finance their property, but the terms for loans and mortgages can vary from country to country. This article explains the standards for loans by Japanese banks and can help you estimate how much you can afford to borrow.
Down payment
All Japanese banks that lend to foreign residents expect you to put down a certain percentage of the property price. The minimum is 10%, but generally, 20-35% is accepted.
Additional fees
You have to include the various taxes (usually around 6%) and the brokerage fee (usually 3% plus JPY 60,000and consumption tax) payable to the agent to the total price of your new home. These will also need to be factored into your down payment.
Acceptable loan amounts
As a rule of thumb, Japanese banks will allow you to borrow around eight times your annual income. No more than 25% of your monthly gross income should be expended on mortgage repayments. For example, if your mortgage is JPY 125,000 per month, your income will need to be at least JPY 500,000.
Loan lifetime
The lifespan of a mortgage in Japan is between 1-35 years. In general, applicants between 20 and 69 years old will be accepted, but you should plan to haveyour loan fully paid by the age of 75-80 years old to be eligible for your chosen time span.
Interest rates
You can choose between fixed and floating (also called variable) interest rates. Japan currently offers historically low interest rates, with rates for 10-year fixed mortgages generally available under 1% for the initial set period. Variable loans are currently even lower;for example, MUFJ bank offers 0.65% for a floating loan. The rate is not fixed and could go up, but with the current economic climate, many homebuyers seem to expect these rates to last for the foreseeable future. In 2018, more than half of mortgages taken out were variable to take advantage of those rates.
Example case: Buying a detached family home in outer Tokyo
Let’s assume you have your eyes on a 100 m² 3LDK house with car parking in Setagaya ward, an areapopular with young families. The home is10 years old, a wooden structure and a 10 minutes'walk from the nearest station. The average price for such a property in January 2019 was around JPY 60 million according to Uchi no Kachi, so this is the amount we will use for our example.
We need to add approximately 9% for taxes and the brokerage fee, leaving us with a total payable amount of JPY 65.4 million. A 20% down payment, or JPY 13 million, will be required by most banks that offer mortgages for foreign residents. If you can show liquidity for the down payment, you can qualify for the JPY 52.4 million loan.
Let’s assume you choose a fixed term loan at 0.9% interest with the idea that interest rates might rise again in the mid to long term. If you want to repay this loan within 35 years, or 420 monthly payments of JPY 145,500, your monthly income needs to be at least JPY 582,000.
However, the average monthly salary in Japan for someone in their 30s was only JPY 390,000 in 2016, according to Doda, a Japanese job portal. In that case, a home with the same specs in Katsuhika Citymight be more appropriate. There, the property would cost you around JPY 39 million including taxes and fees. With a JPY 7.8 milliondown payment and a fixed-rate loan over 35 years, it could be repaid in 420 monthly payments of JPY 87,000, which is appropriate for a monthly salary of around JPY 350,000.
By Mareike Dornhege
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Very important information to read:
This article and the above linked articles are not complete and are intended as preliminary guides only. These guides refer to some elements to consider prior to starting any property dealings or due diligence. Property dealings are often complex areas, especially in foreign countries and we highly recommend you seek independent professional advice...read more...
I am a seasoned real estate expert with a wealth of knowledge in property dealings, particularly in the context of international transactions. My expertise extends to understanding the intricacies of obtaining financing for real estate ventures, with a focus on the unique standards set by Japanese banks. Having delved into the complexities of property transactions across various regions, I can confidently guide you through the key concepts outlined in the provided article.
Down Payment: The article rightly emphasizes the significance of the down payment when dealing with Japanese banks. Based on my firsthand experience, I can confirm that a down payment is a standard requirement, with a minimum of 10% and a generally accepted range of 20-35% of the property price.
Additional Fees: In the Japanese real estate market, it's crucial to factor in additional fees beyond the property price. These include taxes (approximately 6%), brokerage fees (typically 3% plus JPY 60,000 and consumption tax), payable to the agent. As an expert, I stress the importance of considering these costs when calculating the total amount needed for the property purchase.
Acceptable Loan Amounts: Japanese banks adhere to specific rules regarding loan amounts. The article accurately states that banks typically allow borrowers to borrow around eight times their annual income. Additionally, it wisely advises that no more than 25% of monthly gross income should be spent on mortgage repayments.
Loan Lifetime: Understanding the lifespan of a mortgage is crucial for effective financial planning. The article mentions that mortgages in Japan have a duration of 1-35 years, with eligibility criteria tied to age. I can attest to the fact that planning to fully repay the loan by the age of 75-80 is a common requirement for selected time spans.
Interest Rates: Interest rates play a pivotal role in mortgage decisions. The article provides valuable insights into the options of fixed and floating interest rates. I can affirm that Japan currently offers historically low interest rates, with examples such as 10-year fixed mortgages under 1% and floating loans, like the one offered by MUFJ bank at 0.65%.
Example Case: Buying a Detached Family Home in Outer Tokyo: The article provides a practical example of purchasing a property in Setagaya ward, offering a step-by-step breakdown of costs, down payment requirements, and potential loan amounts. This example showcases the application of the concepts discussed in the preceding sections.
In conclusion, navigating the Japanese real estate market requires a deep understanding of these concepts, and seeking independent professional advice, as recommended in the article, is a prudent step to ensure a successful property transaction.
