June 17, 2013
When a lender loans you money, they are using the property being purchased, or refinanced, as security against that loan. Lenders are traditionally risk adverse, and prefer securities that are tried and tested in the market place.
This means that they prefer properties that are easy to sell on in the unlikely event that they had to foreclose on a borrower. Likewise, homeowners and investors also typically give consideration to the re-saleability of a property they are looking to secure.
With this in mind, lenders typically prefer not to lend against the following:
Studio apartments less than 40 square meters:
Due to lender policy, the number of lenders that are available to finance a studio diminishes significantly once the internal living space of that studio falls below 50 square meters. Once the living area drops below 40 square meters, there are only a handful of lenders that can be approached.
As a rule of thumb, any complex that is more than 3 stories and has more than 30 units will be deemed to be high density. Some lenders have policy where they will not lend against a high density development, especially if that complex is in an inner suburb.
Off the Plan:
It is impossible to obtain formal loan approval for an off the plan purchase until such time that the building is comlete and occupancy certificates granted by local council. The simple reason for this is that a lender requires a valuation to be carried out on the security property before it can issue formal loan approval – and a valuation cannot be carried out until the property is completed and, inspected by council with occupancy certificates being issued.
This leaves you - the borrower / purchaser - at risk of lender policy change during the construction phase. Due to significant lender policy change mid 2015 - many purchasers of off the plan properties will struggle to qualify for a loans under the new policy.
A company title exists where a company owns the block of units, and each unit is considered a share. Therefore, the owner effectively becomes a share holder in the company. Lenders are concerned that there is a limited number of buyers willing to purchase a company title and each has a specific policy on how they will treat these.
Properties that are heritage listed come with specific restrictions with respect to their development. As such, some purchases will be put off by these restrictions and many will seek out properties that are not heritage listed. Accordingly, there will be many lenders that will have specific policy regarding using these properties as security. This policy may include limiting the LVR to 65% or less for example.
Hotel / Motel conversion:
More common in inner city precincts, these conversions almost always have very small internal living space and often retain the hotel feel. Lenders will treat these much like studio apartments.
By their very nature, student accommodation is often small and has a high turnover in tenants. This can lead to all sorts of issues from increased upkeep, rent defaults and so on. Obviously the lenders will perceive these to be far more risky than traditional types of residential investment property and many will not lend against them.
If you are considering any of the above – please contact me ASAP to discuss your options on 0414 259 699