What are the location categories?
Each lender and LMI provider has a guide that assigns a category for each postcode in Australia. There are typically five categories:
- Metro Plus: Established properties in well sought after metropolitan locations. Very low risk.
- Category 1: Metro areas, capital cities in each state & major regional centres with a large population. Generally considered to be low risk.
- Category 2: Medium sized regional centres. Considered to be low to medium risk.
- Category 3: Smaller towns with fluctuating property markets. Considered to be medium to high risk.
- No Category / National Locations: All other postcodes that aren’t included in the above categories. Considered to be a very high risk.
- High Density: Inner city suburbs or areas with high rise residential buildings. High density units in these areas are considered to be very high risk.
A particular area or postcode may have different classifications for different lenders depending on their interpretation of the property market in that area.
Some lenders will also take historical data into account. For example, Genworth Financial considers Western Sydney to be high risk because they’ve had a lot of losses in that area. On the other hand, QBE LMI has more restrictions on some areas that have an unstable economy.
Why do lenders have postcode categories?
Lenders assess loans differently depending on the location of the property being offered as security. They apply stricter lending policies in high risk locations to limit their risk. In most cases, this means they often reduce the maximum available LVR and the maximum loan amount that you’re able to borrow.
For example, if you apply for a 95% mortgage in a Category 3 location, the lender may decide that this is too high a risk and therefore may request that you reduce your loan to 90% or 80% LVR. If this happens and you’re unable to come up with a larger deposit, your mortgage application will be declined.
Home loans with no postcode restrictions
Some of our lenders don’t have any postcode restrictions and will consider any location in Australia, allowing you to borrow up to 95% LVR. You can read more on our no postcode restrictions page.
Although, there are lenders with no location restrictions, they may limit your loan amount in some states due to comments made by their valuer.
Typically NSW, VIC, QLD and the ACT do not have problems like this due to the valuer. However TAS, SA, NT and WA have extremely remote areas which cause some valuers to list adverse comments in their report to the bank.