Your borrowing power might be limited!

Australian banks consider properties that are worth more than $3,000,000 to be a luxury residential property ($2,000,000 in some states).

These properties are typically located in capital cities and are owned by high net worth individuals.

Surprisingly, some banks can limit your borrowing power so it’s all about choosing the right lender.

How much can you borrow?

• First home buyer: 80% of the property value for loans over $1,000,000 and 75% of the property value for loans over $2,000,000.
• Investor: 80% of the property value for loans over $1,000,000 and 75% of the property value for loans over $2,000,000.
• Guarantor loans: Borrow up to 100% with select lenders only.
• Low doc: 60% of the property value for loans over $1,000,000 (no maximum).
• Discounts: Competitive professional package and basic loan discounts are available. We usually negotiate with several lenders to find the best possible offer based on your situation.

Note: Most lenders restrict the amount you can borrow to 70% or less of the property value. Several lenders specialise in lending for these properties and can lend up to 80% of the value on a case by case basis. Some lenders refer to these types of loans as “jumbo loans” or “high value loans”.

Please enquire online or contact us on 1300 889 743 and our mortgage brokers will provide you with expert advice on the amount you can borrow for a luxury property.

Negotiating a great rate discount

Different banks are willing to negotiate different rate discounts depending on their funding position and their targets for new lending. Lenders that are already too busy with applications to process are less likely to give larger discounts.

So how do you find the cheapest lender? You can either call every lender yourself or use a specialist mortgage broker that can negotiate on your behalf directly with the pricing department of the major banks and other lenders.

Please remember that the rate isn’t all there is to choosing a home loan! Often larger loans have restrictive terms and conditions, hidden costs or high exit fees. Please check the loan offer you are issued to make sure there are no hidden surprises.

Maximising your loan amount

If you have a high income but a relatively small deposit then your main goal should be to have the highest possible loan to value ratio (LVR) for your loan. This is the percentage of the property value that you are borrowing.

In some cases, we are able to negotiate LMI approval (80% to 95% loans) for loans over $1,000,000 or extend a lenders maximum loan amount to 80% for loans over $3,000,000 on a case by case basis.

Why are the banks so conservative?

Banks are in an unusual position when dealing with customers applying for home loans greater than $1,000,000. Larger loans, particularly loans over $2,000,000, represent a much higher risk than a loan of say $300,000. In particular, penthouse apartments are often in the CBD of a capital city which means that it may be subject to larger price fluctuations than other properties.

In addition to this, lenders often give a special rate discount so their margins are much smaller. They are eager to do business with you because they make more money from larger loans but they are also hesitant because of the larger potential loss!

The rule of thumb is that lenders will give special rate discounts but are also more likely to decline the loan. For this reason it is important to not just look at the potential discount but also look at how comfortable that particular lender will be with your personal situation.

Unique property case study

Chris and Julie wanted to sell their heritage-list home in Fitzroy to buy an apartment closer to the Melbourne CBD.

Their bank valued their home at $2.5 million 5 months ago but when it came time to sell, it sold for $1.8 million. That’s $700,000 less than the bank valuation!

What went wrong?

• It’s almost impossible to find comparable sales on heritage-listed property which makes it difficult to come to a fair valuation.
• The land size is over 2,500m² but the house itself only has two bedrooms.
• Luxury property worth over $2 million can fluctuate in value much more than standard residential dwellings.
• At the time the couple wanted to sell, the Melbourne real estate had weakened and it’s typically unique properties that are hit with the most conservative valuations.

Unfortunately for Chris and Julie, the real estate market can change pretty quickly and this can affect the bank’s decision in how much they’re willing to lend, particularly for luxury homes.

Luckily for the couple, they purchased the property for $6000,000 around 10 years ago and they were to pay out the remainder of their mortgage and buy their unit.

They were obviously disappointed about selling their property for $700,000 less than what they were expecting but it could have been worse!

How to apply for a mortgage

Not sure whether you’ll get approval for a home loan?

Call 1300 889 743 or enquire online and one of our specialist brokers can tell you which lenders can finance your luxury property.