Fancy a taste of the city life? Apartment living can be a great experience for anyone who loves the hustle and bustle of city living, or just likes the idea of only having a small space to maintain. When it comes to buying an apartment though, there are a few potential obstacles to look out for that make it a little different to buying a standard house. Here’s the 101 on borrowing to purchase an apartment.
The first distinction we need to make, is between “Standard” and “Non-Standard” apartments. The definitions for these differ from bank to bank, but the general gist of it is as follows:
Standard apartments:
- Have a minimum size – with the main banks the smallest acceptable size is 38sqm excl any balcony if applicable
- Have a freehold or Stratum in freehold
With standard apartments, banks will lend up to 80% of the value of the property if it’s to be owner occupied, meaning you only have to come up with a 20% deposit. Note there is no high LVR (>80% LVR) lending for apartments currently across the main banks. For investment properties, the usual LVR rules apply (65% for existing, up to 80% for a new build).
Some things that make an apartment be classified as Non-Standard include:
- Too small (<38sqm as per above)
- Built-for student accommodation
- Serviced apartments
- Leasehold
- Dual-Key (one title for more than one apartment)
- Don’t have a bedroom that is separate from the living area
When it comes to non-standard apartments, max lending can drop to as low as 50% of the purchase price and there can be other more restrictive lending criteria.
The second thing to note, is that apartments come with body corporate costs. This is a fee that you pay that goes towards the management and maintenance of the building. The bank will count this as an expense, and this goes into consideration when assessing how much you can borrow, so this is something to keep in mind when budgeting for your new apartment.
In some rare cases, a bank may have already provided funding for multiple apartments in the same block and consider that to be their maximum exposure there, meaning they won’t provide you any funding at all and you’d have to approach another bank instead. That is why working with an adviser can be helpful as we can approach more than one lender on your behalf without going through an application process twice!
For any further discussion regarding funding an apartment, don’t hesitate to get in touch.