Getting a loan could soon get harder

Units are cheaper but getting a loan can be harder, warns Effie Zahos.

House or unit? The decision for first-home buyers often comes down to price.

To buy a house in, say, Brisbane you'd need a deposit of about $104,000 if you want to avoid lenders mortgage insurance.

To get your foot through an apartment door you'd only need to save $70,000. In Sydney the difference between a deposit for a house versus a unit can be a massive $73,000 if you keep your loan to value ratio (LVR) at 80% or lower.

While a unit is more affordable than a house, surprisingly it's not as easy when it comes to securing your finance. Lenders impose more stringent criteria on borrowing for apartments.

Most have always had policies about the minimum size of living space that they're prepared to lend against. But, amid the current bullish sentiment and related to certain pockets where there's an oversupply of apartments, it appears lenders have tightened up on a few things.

For the record, most lenders, still, aren't comfortable lending for a property that is less than 50 square metres (excluding garaging). Some will go as low as 40sqm but a maximum LVR of 80% applies.

"Lenders are cautious about being overexposed in any one development or any one suburb," says Smartline personal mortgage adviser Ben Dennis.

So if a lender has already underwritten a number of apartments in a development and you apply for a loan to buy there, you may get a knockback.

This may have nothing to do with your application or credit history but rather because the lender doesn't want any more exposure to that building.

Dennis says that some lenders have a list of postcodes or developments they're not prepared to lend for and they sometimes make these available to mortgage brokers.

Marios Rokka of Loan Market points out that if you are having difficulty in financing an apartment or unit purchase due to some lenders' credit criteria, then so will a potential buyer when you try to sell the property.

Rokka warns his clients to try to avoid buying off the plan in a high-density development, at least until it is close to completion and the bank is able to complete a valuation before you buy it.

"Recent activity has shown off-the-plan values falling at the time of settlement, which makes lending difficult and sometimes not possible," says Rokka.

"Additionally, a fall in the value of the property purchased off the plan - even if lending is still possible - increases the overall LVR, which causes mortgage insurance premiums to increase, therefore negating possible stamp duty savings."

By holding off you risk missing out on the property but at least you go into the purchase with eyes wide open rather than hoping that all will be OK in, say, 18 months when you have to settle.

According to Dennis, larger lenders tend to have fewer restrictions than smaller ones but the key to getting your application approved can come down to keeping your LVR just under 80%.

"While lenders might be comfortable with lending on some types of apartments or units, the lenders mortgage insurer may have their own criteria and exclusions," says Dennis. "Keeping your loan to less than 80% of the property's value will ensure that you don't have to also pass the insurer's criteria."

When it comes to borrowing for an apartment, or even a house, there's not a "one size fits all". Lending policies do change and at the moment borrowing to buy a house does seem to have fewer issues to consider than buying an apartment. But as Rokka says, the value for money in an apartment that is already established in the inner suburbs often offers a stepping stone for first-home buyers looking to get into the market before settling down and starting a family.

With a growing population, minimal land supply and an influx of migrants who are used to apartment living, Dennis suspects it won't be too long until we see lenders and insurers relax some of their criteria.

With Heidi Armstrong

In today's market of low interest rates and growing property prices, many property owners are well positioned to take advantage of any equity gains and consolidate expensive personal debt. Typically, personal loans and credit cards attract much higher rates of interest than a mortgage and these repayments can put an enormous strain on household budgets.

In addition, juggling a number of different credit cards and personal loans as well as a home loan can be challenging and easily create a sense of chaos. Consolidating these unsecured loans into your home loan and making only one monthly repayment has the advantage of not just potentially saving you thousands in interest but saving your sanity as well.

However, having sufficient equity in your home is essential for debt consolidation and you won't know until your lender values the property. With the property market heating up, people are unsure what their properties are worth. Getting your property valued by your lender is the only sure way of knowing if you have the equity to consolidate debt.

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