How small is too small for an inner city apartment? With policy changes occurring often in the current lender landscape, it’s important to note that some smaller properties come with extra hurdles when applying for finance. Here are just a few points to remember:
- A basic rule of thumb is 40 sq. living space plus a balcony for a lender to consider lending against it. Anything below this may be considered a studio or serviced apartment and result in a reduced loan to value ratio to approximately 60%.
- As a general rule, student accommodation is not accepted as security due to size.
- With 40 sq. plus apartments, most lenders will lend up to 80% of market valuation.
- If you have purchased off the plan, be prepared to contribute more funds to your purchase as a lower valuation can occur. Remember the bank will lend against the lower of the two – valuation / purchase price.
Once the apartment size reaches 50 sq., your choice of lender becomes more varied.
- If you need to borrow more than 80% LVR you will usually be required to take out lenders mortgage insurance (which covers the lender, not you) – generally, approval for these high lend transactions is treated on a case by case basis.
- Be cautious when purchasing off the plan through your Self Managed Super Fund – some lenders will not accept this type of transaction.
- Certain lenders take an extra step and hold a register of inner city apartments that they will not lend against. The reasons for this are varied but are usually due to the fact that they may already be too exposed to certain developments or areas.
Our advice is to check with your mortgage adviser before purchasing an inner-city apartment. Our lending specialists know all the ins and outs of lending against smaller apartments and can help you avoid the pitfalls.
Mathew Ciavarella – Operations Manager.
Learn more about Mathew here.
Disclaimer: This article has been prepared without taking into account your objectives, financial situation or needs and should be regarded as general advice only. Before acting on this advice you should consider whether it is appropriate for your needs and has regard for your own objectives and financial situation. We encourage you to consult a finance professional before acting on any advice provided in this article or found on this website.