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Buying a new apartment? Banks just made it easier
By Kirsty O’Hara
In this article Velocity Financial Client Services Manager, Kirsty O’Hara, outlines the changes in apartment lending that now make it easier for people to purchase an apartment.
In recent months main banks have released new rules and regulations around apartment lending, that may make the approval process easier.
In a nutshell, apartments are considered a smaller footprint, and now meet the banks’ Standard Apartment Policy - making standard apartments generally easier to fund with a smaller deposit.
With housing and building materials in increasingly hot demand, it makes sense that the banks would make policy requirements on smaller space lending more accessible to borrowers and first home buyers.
This is good news for first home buyers, many of whom are wanting to get a foot onto the property ladder in desirable city centres, amongst the hustle and bustle of city life.
Main banks have released new rules and regulations around apartment lending, that may make the approval process easier.
To give you some context on these changes, in the past to be considered ‘Standard,’ apartments had to be over 45m2 in floor size. Apartments were also subject to higher Loan-to-Ratio (LVR) restrictions, and furthermore, there were rules around the ratio of bedrooms-to-floor-area that an apartment had to have, to meet policy requirements. These restrictions tripped a lot of people up and made apartment buying just that little bit harder.
In today’s environment, standard apartment lending has just become a whole lot easier. For standard apartment lending now, banks have made the following changes:
Standard apartments sizes are now considered over 38m2* (excluding the garage and balcony), which means buyers have greater scope to secure loans against smaller footprint apartments
LVR restrictions have loosened to 80% LVR for owner-occupied purchase, meaning it is easier to secure a loan with a smaller deposit. For example, if you have a 20% deposit, you are less likely to need a valuation.
Bedroom requirements are more realistic, with less focus on the required area in m2 allocated to living and bedroom spaces (providing the bedroom is separate from the living area).
*Note: A non-standard apartment can now have a floor area between 30m2 and 38m2, see below for more details of what qualifies as non-standard.
A property is considered an apartment if all the following criteria apply:
• The apartment is adjoined to another property
• The apartment is part of a block or development, that is greater than one residence in height
• The apartment is on a Unit Title (or strata title), meaning it is contained in a building where there are multiple owners
Apartments are also further split into standard and non-standard apartments:
A standard apartment is generally defined as having at least one bedroom and being greater than 38sqm (excluding balconies and garages). Apartments are subject to the exceptions listed in non-standard apartments (below).
Non-standard apartments are different from the above, in that they require:
· A registered valuation on all LVRs
· A maximum LVR of 50% for Owner Occupier and Residential Investment Apartments.
Examples of Non-standard apartments include the following:
• Leasehold apartments
· Dual Key apartments
• Apartments between 30sqm and 38sqm in size.
• Studio apartments (where the bedroom and living are one open space)
• Bedsits
• Warehouse or office conversions
• Serviced apartments
• Student/university apartments.
Before you get too excited and start planning where the couch will go, there are some apartment caveats to keep in mind with non-standard apartments.
These still require a maximum LVR of 50% for Owner Occupier and Residential Investment Properties.
These apartment types are characterised by a bedroom which is not separate from the sitting room or kitchen/kitchenette. Alternatively, the property may have a loft-style bedroom.
This definition also incorporates the more upmarket multi-bedroom warehouse-converted apartments and conversions of office blocks into apartments.
If you have a decent sized cash deposit, these sorts of apartments can be a good option – given your house hunting competition may still be saving towards their deposit and therefore not in the running to meet the 50% LVR policy requirement.
When buying an apartment, it is essential that your pre-approval allocates expenses towards potential Body Corporate Fee’s.
A Body Corporate is the governing agency and committee that oversees the maintenance and regulations for a multi-dwelling or unit title property.
The monthly fee can vary dramatically depending on the size of the apartment complex, the rubbish and landscaping requirements, the age and stage of the building/s, and the upcoming building maintenance requirements.
Generally, Body Corporate fees also include insurance for the property, and you can consult the Body Corporate Minutes for a full breakdown of any upcoming maintenance that the Body Corporate is budgeting for.
It’s always a good idea to get your lawyer to review and advise around the Body Corporate minutes and Pre-Contract Disclosures documentation for any apartments you are considering.
If you are considering purchasing an apartment to live in, or as an investment, your financial adviser will discuss the options available to you. Working with an adviser you can organise a pre-approval, so you can apartment-hunt or offer with confidence. Talk to your lawyer and financial adviser around any risks associated with construction timeframes and deferred future settlements, as we can never be sure what policy changes may occur in the future of bank-land apartment lending criteria.
Happy Apartment Hunting!
About Kirsty:
Hi, I’m Kirsty. I’m a Client Services Manager in Brendon Ojala’s Velocity pod - which means I help welcome new clients, get applications to banks, make sure properties are accepted, ensure deals are approved, celebrate tenders won, ensure clients are confident at auctions, and best of all check in to make sure keys are smoothly handed over at settlement. I love my job because it’s fast paced, I’m working with fascinating people in an industry I’m passionate about, and no two days are the same. I love that I get to make sure people have shelter, and homes that they love to live in. It’s incredibly rewarding helping first home buyers secure their first property! I also have an interest in residential architecture, and love supporting clients as they build their family dream home. When I’m not at my desk you’ll find me enjoying time in nature, building an architectural house, playing games with my kids, or at a sports event. I like to dance when I’m cooking, and my home increasingly looks like an indoor jungle.
DISCLAIMER:
Before you make any decisions, discuss your situation with an adviser from Velocity Financial, and seek advice from professionals, such as a lawyer and accountant, to find the best solution for your unique situation.