Why would some banks still decline the mortgage application after pre-approval? It might simply because of the property type not meeting the bank's requirements. Today, we will have a detailed look into the property types that are not easy to get a loan.
Luxury House
Generally, it refers to houses with a value of more than five million dollars. Because the total value is high, LVR of these houses may be limited to 70% or less.
New Apartments in Areas Where Supply Exceeds Demand
This mainly occurs in the inner urban areas of large cities. Because of the continuous supply of new apartments in these areas, it is easy to lead to the decline of the real estate market. Especially for large off-plan projects, the buyers of these properties could be very vulnerable. Therefore, when buying a property, you might still consider the scarcity of the property, and the bank is more willing to lend you.
Small Apartment
Generally speaking, for small apartments of less than 40 square meters, few banks will offer mortgages. Although these apartments have obvious advantages, such as good geographical location, high rental returns and low total price, the disadvantages are also obvious: The size of the apartment is too small and the marketability is not high. Therefore, banks do not like to lend to apartments less than 40 square meters.
Student Apartment or Service Apartment
Banks generally think that commercial properties are riskier, including student apartments and service apartments. This kind of real estate will be affected by the government's immigration policy or the number of foreign students admitted. Moreover, due to the frequent replacement of tenants, it is easy to incur rent arrears and increase maintenance costs. Same with retirement villages or hotels, as the purpose of these properties is also specified and not easy to change, and the market circulation is low. Therefore, the investment risk of such properties will be relatively high, and there will be fewer banks that can offer mortgage loans.
Property with Complex Ownerships
In Australia, it is common to buy properties in the name of a company or trust. However, once the company's share ownership and jointly owned properties are encountered, or with some complex trust ownerships like unit trust involved, many banks will be particularly cautious. Because if the loan defaults, the legal costs for banks to recover debts will be much higher.
Property with Poor Location
Lenders are now more and more concerned about the geographical location of the property. For example, if the frequency of natural disasters in the area is high, the risks that banks need to bear after lending will be very high. Therefore, the frequency of natural disasters is also part of the risk assessment of lending institutions. Or the community where the property is located has a high crime rate and unemployment rate, which will also arouse the bank's vigilance. There is also property in remote areas - If it is too far from the urban area, the bank may also limit the LVR.
Rural Property or Commercial Property
Compared to residential properties, there will be fewer potential buyers for these two types of properties, and it will be difficult to sell them again. Therefore, the loan risk of these properties is higher, and the LVR is lower, usually within the range of 65% or less.
Other Properties
There are some other types of properties that are also not easy to get a mortgage:
Properties with certain DA approval;
Boarding house;
Display home;
And rural property with extremely large land size.
Therefore, when buying a property in Australia, you not only need to get a pre-approval, but also need to understand the type of property you are pruchasing, and also the bank's lending policy as well. Contact your professional mortgage brokers at Moremore Finance to obtain the most comprehensive and professional advice.
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