Some banks and home loan providers may refuse to lend money on properties that they consider too small. They are concerned that you won’t be able to sell them in the future, if the need arises. Compact living in small studio apartments is popular for renting purposes but when does a property become too small for it to become a home, as far as financing it is concerned?
Speaking to a professional mortgage broker in Rockingham will provide you with all the information you need to secure a loan against a small property. They will be able to let you know which of the lenders will forward money against a very small property and the size of deposit that you will require because some banks insist on a much larger deposit when you’re buying a tiny property.
The Price is Right
Following the recession, people are being more sensible about the amount of money they intend to borrow, which has resulted in many people looking at smaller properties so that they can easily manage their debt and the living lifestyle, well within their financial constraints.
Potential purchasers are seeing their offer for a property being accepted but once they go through the process to raise the finance, the majority of banks are refusing to lend the money because the property, usually a studio apartment, is too small.
First home buyers and investors are keen to purchase bedsit properties because the price is often right and they are usually located close to everything you need such as shops, restaurants and nightlife.
These properties can be purchased for cash but of course, most people wishing to buy these properties need a home loan, which the banks won’t give you.
Which Properties are too Small?
Experts suggest that properties over 50 m² are acceptable to the banks and home loan providers. If the property you wish to purchase is between 25 and 40 m², banks may only forward between 60 and 80% of the loan. For any properties under 25 m², you’re going to need to speak to your mortgage broker in Baldivis to try and find a lender that will accommodate your needs.
The banks regard these very small properties as student accommodation so while investors are prepared to buy them for cash to rent out, they claim there is no market for people to purchase these properties, particularly claiming that reselling will be very difficult.
Even when a potential homeowner or investor has claimed pre-approval of a particular size of loan from a major bank, the ability to close the deal can still be refused by the bank if they find that the property is too small, which they will when they carry out an inspection of the property.
Westpac will only lend for properties that are larger than 50 m² and the same rules apply at NAB. In theory both will look at anything above 40 m², but will probably refuse anything smaller. BankWest has a policy which suggests that 35 m² is a minimum. ANZ will forward funds against properties that are at least 30 m² in size but they will require a 40% deposit. If you’re looking for a studio apartment, then the Commonwealth Bank isn’t so much worried about size but they will insist upon a 20% deposit.
Rules like these change almost on a daily basis so it is essential that you speak to your mortgage brokers in Kwinana, Rockingham or wherever you are in Western Australia, to find out which deal is right for you whether you want to buy a studio apartment or an equally small property.