The mortgage industry in Australia is worth a whopping $78 billion and employs almost 160,000 people, IBISWorld data shows. With so much money on the line it’s no surprise that most lenders are very careful about the properties they secure loans against.
For fledgling buyers this can be challenging. With that in mind, to make life easier for those looking for a home and a mortgage – we have a look at which properties lenders tend to prefer (or prefer to avoid).
DISLIKE: PROPERTY’S IN RURAL AREAS OR BAD NEIGHBOURHOODS
When banks assess your mortgage application they always consider the saleability of the proposed property.
When banks assess your mortgage application they always consider the saleability of the proposed property, just in case you default on your mortgage down the track and they need to sell to recover their funds.
To that end, rural properties can be problematic. The success or failure of smaller rural areas often rests on the back of one or two industries such as agriculture. In the event of a drought or other event that damages those industries the area may become less attractive, causing property prices to take a dip. Lenders don’t like that volatility and may be more conservative when assessing your loan application as a result.
Properties in bad neighbourhoods or areas with high crime and unemployment may present a similar problem for lenders. In fact, banks such as NAB have actually created a blacklist of risky suburbs where buyers may require more deposit, or be charged higher rates. Again this is because of worries about the saleability of properties in these areas, as well as increased concern about home loan serviceability in areas of low employment.
To be safe, stick to safe areas with good employment rates, as well as cities or thriving semi-rural areas with diverse economies such as Townsville or Wollongong.
LIKE: HOMES IN GOOD CONDITION WITH SOLID STRUCTURES
Avoid homes that have problems that could be costly now or in future.
The condition of a home and its structural integrity will affect its value both now and in the future. When your lender heads out to value your property they’ll consider its condition, requesting any building reports on hand.
If there are issues such as termites, dampness or structural weaknesses, your lender may identify the home as high risk. As a result they could request a larger deposit, increase your interest rates or even reduce the amount they are willing to lend.
To make you and your lender’s lives easier, avoid homes that have problems that could be costly now or in future. Always have a building report done before applying for unconditional finance, and protect yourself by seeking expert advice before committing to a property.
DISLIKE: SMALL APARTMENTS, OR PROPERTY IN OVERSUPPLIED LOCATION
Thanks to the astronomical price of property in our capital cities, small apartments are now commonplace. However, if you’re considering purchasing such property you may struggle to get finance as their saleability may be limited in future (particularly if prices start to decrease which could cause demand for tiny apartments to dry up).
This makes lenders nervous, so as a general rule buyers should look for apartments larger than 40sqm not including carparks or balconies.
As a general rule buyers should look for apartments larger than 40sqm.
Furthermore, apartments that are part of large cookie cutter developments in oversupplied areas may present a problem when applying for finance. Inner ring suburbs in Brisbane and Melbourne where apartment oversupply is rife could be particularly problematic.
LIKE: HOME’S WITH GREAT APPEARANCE AND APPEAL
At the end of the day humans are emotional beings and when we buy a home we don’t just consider it’s size or its sale price. We think about how it makes us feel. We let emotion help us make the decision.
Banks don’t make decisions based on emotion like we do. However, if your property has something special and is likely to be in hot demand as a result, they’ll consider that when considering your application. Perhaps your home has an incredible view, a spacious outdoor area, an appealing design or just an attractive garden. If others are likely to covet the property and want to buy it as a result, that can’t hurt your chances with a lender.
Whatever you’re buying it’s always best to talk to mortgage experts that you can trust. The right mortgage broker may be able to help you secure a loan for a property that could have otherwise been difficult, or even secure you a lower interest rate.
In any case you can be sure that speaking to an expert mortgage broker will make the process as straightforward and stress free as possible.
Sarah Thomson
Loan Market Mortgage Broker servicing Geelong, Surfcoast and the Bellarine Peninsula and surrounding suburbs