Can your lender accept your property as security?
Lenders don’t automatically accept every property as security for a loan.
In fact with low doc loans they are even more conservative with the properties they accept because they believe there is a higher chance that the borrower will run into trouble.
Remember they haven’t seen your tax returns or any other financials!
The banks look for security properties that can be sold quickly, valued accurately and that aren’t likely to fluctuate in value.
We’ve listed a few common types of properties that most lenders don’t like for lo doc, lite doc or no financial home loans as well as the expected maximum loan amount that you can borrow. These include:
Low Doc: You can borrow up to 80% of the value of a company title unit.
Company title properties are usually blocks of units where a company owns the entire building and individuals own shares in the company, which gives them the right to occupy one of the units.
Company title was the precursor to the modern day strata title and is quite common for blocks of units built prior to the 1970s. Lenders take security over the shares rather than the land itself.
Most lenders will not approve low doc loans for company title units because the company has to approve actions of the owners such as selling the property or renting the unit.
Flood affected areas
Low Doc: You can borrow up to 80% of the value of a house in a flood prone area.
Real estate that is in a 1 in 100 year flood zone (1% AEP Residential) is the maximum risk that most lenders will consider.
Properties in areas that are known to flood more regularly are unlikely to be considered as security for a low doc loan. Houses where the known flood height is higher than the height of the floor can be considered on a case by case basis.
Low Doc: You can borrow up to 80% of the value of a heritage listed house.
Properties that are considered to be of historic importance, or built with a design that is important to Australia’s cultural heritage, may be listed on either a state or federal heritage protection list.
The property must be maintained in good condition and restrictions are placed on the types of changes that can be made to the external appearance of the property.
Many people believe that being heritage listed increases the value of a property.
However, lenders see these properties as a higher risk because they do not always appeal to everyone looking to buy a house. Heritage properties can also be difficult to value due to a lack of similar properties to compare them to.
High value luxury properties
Low Doc: You can borrow up to 60% of the value of a luxury residential property worth in excess of $3,000,000.
Exclusive properties in upper class suburbs that have values in excess of $3 million tend to fluctuate in value and may even reduce in value as a flow on effect of share market crashes. Because of this, lenders tend to limit the maximum loan amount to 60% of the property value.
Some lenders will consider an 80% LVR loan to a loan amount of $1 million, and a 70% LVR loan to a loan amount of $2 million. Anything more than $2 million will have a maximum loan amount of 60% of the property value.
Non-bank and private lenders may consider higher loan amounts on a case by case basis.
Low Doc: You can borrow up to 80% of the value of a Hobby Farm.
The maximum land size that lenders will consider finance on is 2 hectares with a low doc loan, however we do have lenders that can consider up to 50 hectares.
The land must have easy access at all times, and the location needs to be close to a town.
The land must also be within range to be connected to the electricity grid without excessive costs. Town water and sewerage services are not required as many Australian properties have tank water or septic tanks instead. Fully serviced and partially serviced blocks are both acceptable.
The land should be used for personal or investment purposes, not as an income-producing farm. Hobby farms with minor farm improvements and no income from farm production are usually accepted.
These minor improvements could include: a shed, small dam, a few horses, etc. However, it is a grey area as to what constitutes a commercial farm as opposed to hobby farm.
If the hobby farm is bigger than 50 hectares it may only be able to be financed at 60% of the property value with an agriculture finance product.
Low Doc: You can borrow up to 80% of the value of a holiday rental house or unit.
Lenders view holiday rentals to be a higher risk due to the fluctuating nature of the rental income and the higher management fees from agents. Often real estate in holiday locations are hard to sell during the off season as fewer tourists are in town looking to buy a weekender.
The amount that you can borrow and which lender we choose will depend on the type of real estate, if it is specialised in any way and the postcode it is in.
Rental income may not be fully considered in the lender assessment. Enquire online or call us on 1300 889 743 to find out how much you can borrow for your holiday rental / weekender.
Hotel / motel unit
Low Doc: You can borrow up to 60% of the value of a hotel apartment or up to 60% of the value of a hotel / motel conversion.
Some hotels, such as the Sebel, allow people to invest in their hotel by buying a room in their building. The hotel uses the room and rental income is paid to the investor. These types of properties can only be used as an investment and can only be leased to the hotel.
Because of these restrictions the normal maximum loan amount is 60% of the value of the property.
Motel units and hotel units that have been converted into residential strata units do not have these restrictions. If they are of good quality and the bank’s valuer believes they are readily saleable then you may be able to borrow up to 60% of the value of the property.
Inner city apartments
Low Doc: You can borrow up to 80% of the value of an inner city apartment.
High density units are usually defined by their postcode along with other criteria such as being over three stories tall or having more than 30 units in the complex.
Many lenders fear that there is less demand for inner city units, in particular when a complex has just been completed and there are remaining unsold units in the same building as your unit.
The majority of lenders will not lend more than 60% of the value of the property as a low doc loan however some of our lenders can consider up to 80%.
Low Doc: You can borrow up to 80% of the value of a property on an island.
Lenders restrict low doc loans that are secured by properties located on an island that is not connected to the mainland by a bridge.
This is because there is less demand for this type of property, which can prolong the resale of the property.
Land and houses in Tasmania or on Russell Island, Lamb Island and Macleay Island, which are all located in Redland Bay QLD, can be financed up to 80% of the property value with a low doc loan.
Properties on other islands are assessed on a case by case basis.
Landslip prone areas
Low Doc: You can borrow up to 80% of the value of a landslip prone area.
If your property is in a landslip area then please call us on 1300 889 743 or enquire online to discuss your options. Each application is assessed on its own merits so we will usually discuss your loan with several lenders so you can get the best possible outcome.
Some properties are completely unacceptable with no lender willing to accept them as security.
Mine subsidence districts
Low Doc: You can borrow up to 80% of the value of a property that is in a mine subsidence district.
Land that is above an area that was mined may be at risk of collapsing. These districts may have restricted zoning and are considered to be a higher risk by most lenders.
By providing evidence from the mine subsidence board we may be able to assist you in using your property as security for a low doc loan.
Multiple units on one title
Low Doc: You can borrow up to 60% of the value of up to four units on one title.
It is quite common for medium sized investors to consider the higher returns offered by multiple houses, townhouses or units on one title. The rental returns tend to be significantly higher, particularly in regional areas.
Other investors build granny flats in their backyard to turn their home into an investment property.
Lenders do not like this type of security for low doc loans as there are fewer people willing to buy dual occupancies / multiple buildings on one title. Normally 2, 3 or 4 units on one title are acceptable.
Some lenders can consider 5 or 6 units as a residential loan or 7+ units as a commercial low doc loan. However, one of our lenders can consider 10 units with a 60% LVR (Loan to Value Ratio) or under.
Enquire online or call us on 1300 889 743 to find out the full details about financing more than 4 units on one title.
Off the plan units
Low Doc: You can borrow up to 80% of the value of Off the Plan Units.
Banks tend to be more conservative with off the plan sales because in some cases properties are sold for more than they are worth and the bank valuers have failed to notice the discrepancy.
Many lenders do not give the final approval for off the plan purchases until they are complete, or within 6 to 12 months of completion. In many cases they will ask for a certificate of occupancy prior to approval or settlement.
Many lenders do not consider Off the Plan Units with low documentation loans, however we do have a select few lenders that can consider up to 80% of the property value.
Low Doc: You can borrow up to 80% of the value of a restricted location property.
Almost all banks and major lenders in Australia have a location guide or postcode restriction list that governs their maximum low doc loan amount and lending policy for each location in Australia.
Locations are put into categories based on their population, real estate values, local economy and likely future of the area. Some of our lenders can consider lending up to 80% in remote areas
Properties in bad condition
Low Doc: You can borrow up to 80% of the value of a property in bad condition.
Ask yourself if you could rent the property out in its current condition. If the answer is no then chances are most lenders will not approve a low doc loan using that property as security.
Renovator’s dreams can turn into nightmares when a contract of sale has been signed and then the bank turns around and declines the loan because of the condition that the property is in! It is critical that you do not commit to buy until we have an approval from your bank.
Lenders often ask their valuers to assess how easily a property could be sold. If the property is in a high demand location then even a condemned property that would have to be knocked down may be acceptable to some lenders.
The property must have a working kitchen and bathroom or you may be required to provide a building contract as evidence that you are repairing the property.
In rural locations with limited demand, dilapidated properties are usually unacceptable.
Retirement units / over 50s villages
Low Doc: You can borrow up to 60% of the value of a retirement unit.
Torrens, Strata or Community title retirement units are acceptable with a handful of lenders up to 60% or 70% of the real estate value using a low doc loan.
Leasehold retirement units, often known as manufactured home parks, are unacceptable security for all lenders. You may be able to finance them if you have a guarantor or other real estate that you are willing to use as security for your loan.
Low Doc: Normally low doc loans are not available as a second mortgage.
No Doc: You can borrow up to 80% of the value of a standard residential property.
Prime lenders such as the major banks and major non-banks will not approve low doc loans as a second mortgage. In some cases the lender may be able to do so as an exception to policy if they hold the first mortgage as well.
Private lenders can do a second mortgage up to 80% however they are extremely expensive and are often unreputable.
As a general rule second mortgages can only be used as security for no doc loans by private funders.
Low Doc: You can borrow up to 60% of the value of a serviced apartment.
Serviced apartments are normal units that are fully furnished and leased to short term tenants.
Often they have a management agreement in place whereby the rent from the complex is pooled to distribute between the owners evenly.
Management fees can be high and the resale of units may be limited due to restrictions on some units being released from the management agreement.
Studio apartment / bed-sitter
Low Doc: You can borrow up to 60%, and in some cases 80%, of the value of a studio apartment.
Small one-bedroom units that are less than 50m2 (not including balconies and car spaces) are considered to be a higher risk by lenders and may not be acceptable as security for a low doc loan.
However, some lenders do finance 40m2 properties at 80% LVR.
Almost all lenders will not consider units that are less than 40m2.
Unfortunately most studio apartments and bed-sitters are between 25m2 and 40m2 in size. There are one or two lenders that can consider properties of this size for a low doc loan. We do have one lender that may go lower than 40m2 at 60% LVR or under on a case by case basis.
Low Doc: You can borrow up to 80% of the value of vacant land.
Vacant land is residential, rural residential or rural zoned land with access from an all weather road. Blocks of land that cannot be connected to the power grid or that cannot get sewer, septic, town water or tank water connected are generally not acceptable for low doc loans.
Most lenders will only consider an 80% LVR to a maximum land size of 2 hectares. However, one of our lenders can provide a low doc loan at 80% LVR for a land size ranging from 2 hectares to 11 hectares. Any property bigger than 11 hectares can only be financed at 60% of the property value.
If the land is over 50 hectares there are very few lenders that can approve the loan.
Some banks will put a condition on your loan that you must commence construction within 2 years, while others don’t have this requirement.
Low Doc: You can borrow up to 80% of the value of a residential unit in a converted warehouse.
In recent years developers across Australia have been converting old warehouses into stylish inner city apartments. Lenders may restrict the amount you can borrow because these properties tend to appeal to a smaller market.
For good quality properties with a broad appeal you may be able to borrow up to 80% LVR (80% of the value of the property).