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.
Is your location considered to be high risk?
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.
How does the Genworth Security Location Guide work?
The Security Location Guide created by Genworth is used by mortgage brokers and lenders to determine how Genworth will view the risk of a postcode and the borrowing limit that they will be willing to approve.
As Genworth is one of the largest mortgage insurers in Australia, their assessment of postcodes and the risk they pose affects many lenders and how much they can approve for home loans that are over 80% of the property value (80% LVR).
Genworth postcodes are in different groups using the population of the area, the size of the postcode (km2), number of sales per annum and median house prices.
In addition to the normal categories, Genworth also has high density postcodes where policy restrictions apply to apartments.
How does the QBE Location Guide work?
QBE’s Location Guide has a similar breakdown of postcodes and risk as Genworth but there are less categories and no high density postcodes.
Metro areas are generally acceptable and regional areas are acceptable as long as the loan isn’t too large while other areas are on a case by case basis.
QBE defines a property as being high density based on the size of the block of units, not because of the postcode. Please refer to our inner city apartments page for more information.
Call us on 1300 889 743 or fill in our online enquiry form to get started on your property buying journey today.