In particular we focus on getting the loan structure right the first time, choosing which lenders to use in the right order (yes this is important) and finally getting our clients the best deal possible.
Apartments smaller than 50 m2
Small apartments under 50 m2 or under 40 m2 can be financed through mainstream lenders.However policies vary considerably between lenders (and their chosen mortgage insurers if applicable).
There is also sometimes conjecture between what is and what isn't smaller than a certain size. This can come down to how an actual valuer measures a property. We have in the past had one valuer value a property on behalf of a lender and say it was 39m2 and another say the same property was 45m2!
Units & apartments between 40m2 & 50m2
Generally if the property is more than 40m2 internally, excluding balcony space and carport space etc we should be able to help you finance the property at normal loan to value ratios (LVR's) i.e. up to a maximum of 95% for purchases and 90% for refinances. It is key for us to know the internal size of the property in m2 and the balcony and car space sizes (if applicable). We can then guide you to the most appropriate lender who will approve your loan.
Mortgage insurers policies between 40m2 & 50m2
Loans with LVR's above 80% are subject to the mortgage insurers policies in addition to the actual lenders themselves. However many larger lenders have what is called a DLA or delegated lending authority with their chosen insurer. This means effectively the lenders policies override the mortgage insurers in most instances. It can be very handy to know which lenders have this arrangement as the two major mortgage insurers have the following policies in regards to unit size which can be restrictive:
- Genworth...."At least 50 m2 in living area, excluding balconies and car space. (For good quality properties located in a desirable and high demand capital city metropolitan location, the minimum living area is 40 m2)".
- QBE....."Unacceptable security: Properties less than 50 square metres (including balconies and parking)."
So you can see both mortgage insurers have potential issues with smaller units.Genworth is a bit vague as to what is a good quality property located in a desirable location and this is really an easy out for them if they don't like your application for whatever reason and the property in questions is between 40 and 50m2. QBE on the other hand is OK with units less than 50m2 as long as the total unit size with the balcony and car space added is 50m2 or more.
Units & apartments less than 40 m2 internally
As touched on above there are two ways lenders and mortgage insurers look at unit size. In one camp you have the "total unit size" which includes the internal space of the unit, the balcony space and car space if on title of the property. In the other camp you have those who solely focus on the internal size of an apartment.
- Under 40m2 internal with less than 10m2 of balcony and or car space - the maximum LVR is 80% and only one lender option.
- Under 40m2 internal with more than 10m2 of balcony and or car space - maximum LVR is 95% with a few lending options.
Why are the lending rules so complicated for units under 50m2 ?
It comes down to the lenders drawing "a line in the sand" so to speak on what is and what is and what isn't acceptable as a minimum size for a property that is going to be used as security for a loan.
If a property is very small lenders and insurers rightly take the view that the property will appeal to less people than a standard suburban home or a larger unit for example.Therefore a small unit is considered inferior security as compared to more standard properties.
The pros and cons for units under 50m2 - Our view
With a large portion of Australia's immigrant population coming from Asia where high density living is more the norm we can envisage a time when the above considerations are no longer held by lenders. There is also the argument that as populations increase there will be more appeal to living closer to the city centres rather in outlying suburbs which will increase the appeal of units in general.
On the flip side as it currently stands there is still a saleability factor to consider when looking at smaller units. Will you be able to sell the unit quickly if needed? This is a consideration for both borrower and lender.