Studio Apartment Home Loans
Looking to buy a studio apartment and need finance? It may be easier than you think! The amount you’re entitled to borrow, largely depends on the size of the apartment. Read on to find out more.
How much can I borrow?
Less than 18 m²: There’s no lender that can accept a property less than 18 m² as security for a home loan.
18 m² to 40 m²: You can borrow up to 80% of the property value on a studio apartment home loan.
40 m² to 50 m²: You can borrow up to 90% of the property value. You may be able to borrow up to 95% of the property value if you’re in a strong financial position.
More than 50 m²: You can borrow up to 95% of the property value.
Low doc: Unfortunately for properties under 40 m² there are no lenders that can assist with a low doc loan. Low doc loans are available for properties that are 40 m² and above.
Guarantor: You won’t need a deposit if your parents can secure your mortgage with a property they own.
Discounts: Competitive professional package and basic loan discounts are available.
Please note that the above sizes are in meters squared and are exclusive of balconies and car spaces, referring to the internal living area of the unit.
What is a studio apartment?
Banks define a studio apartment as any unit that doesn’t have a wall separating the bedroom from the living areas / kitchen. Unlike other property types, a studio apartment has a bathroom and usually a small kitchenette.
Generally, a studio apartment is very small, often less than 40 m² and can even be as small as 25 m².
They are also known as bachelor apartments, bedsitter units, bedsits or 1 bedroom apartments.
Note that 1 bedroom units that have a separate bedroom to the rest of the living areas and that are over 50 m² can be considered for normal home loans and not necessarily a studio apartment home loan.
The unit size is everything!
Every lender has their own guidelines as to the minimum unit size that they’ll accept. Typically, most lenders won’t accept units that don’t have an internal living area (excluding balconies & car spaces) of 50 m².
We have lenders that can consider smaller properties, depending on the percentage of the property value that you need to borrow.
In addition to this, a one bedroom unit is seen as a lower risk than a studio apartment. This is because lenders believe having a wall between the bedroom and the living area makes a unit more marketable.
How can I borrow over 80% for a unit under 40 m²?
An alternative way to borrow over 80% is with a guarantor home loan. Because the lender has your parent’s property additional security, they can consider lending 100% of the purchase price.
Why are the banks so conservative?
Australian lenders believe that a small unit is an unusual property and that there are less potential buyers that would be interested in such a property. As a result, they believe that a studio apartment (which is usually a small property) may take longer to sell than an ordinary unit.
In our opinion, this is an outdated policy as a studio apartment for a home is becoming increasingly popular.
Who buys a studio apartment?
Many young Australians prefer to live on their own in units from 25 m² ranging to 30 m² for a studio apartment and 30 m² to 40 m² for a smaller 1 bedroom unit.
The average household size has been shrinking and more people prefer to live in a block with facilities such as a swimming pool, gym or sauna which are often a feature of studio apartments.
In particular, young men living in the CBD often don’t spend much time in their apartment at all. For this reason, a small kitchenette with a microwave, a bed & a bathroom is all that they need.
Investing in a studio apartment
Many investors typically like to buy a studio apartment and rent it out. The rent received from the apartment is usually quite significant, especially if it’s situated in an inner city area.
Investors are attracted to areas such as Darlinghurst in Sydney, the Docklands in Melbourne or Southbank in Brisbane & Melbourne.
Advantages of buying this property type
A studio apartment can be a very appealing property type for many individuals. Some positive aspects of buying a studio apartment are that:
- It’s cheaper than a regular sized city unit.
- It’s usually close to the city.
- Generally, re-sale is easy because they high demand accomodation.
- If you’re investing, they have high rental return.
Disadvantages of buying this property type
Some negative aspects of buying a studio apartment are that:
- It can be a noisy living complex.
- Lenders Mortgage Insurance (LMI) can sometimes be high.
- It has a very small living space.
- Often, there are many levies and fees associated with living in a studio complex that has extra amenities.
Apply for a studio apartment home loan today!
If you’d like to purchase a studio apartment to live in or invest, please contact us on 1300 889 743 or fill in our free assessment form. Our specialist mortgage brokers know which banks will approve your mortgage. Speak to us today!