Different banks view townhouses loans differently

Townhouse loans are highly sought after by first home buyers and investors alike but some lenders take a conservative view and restrict Loan to Value Ratios (LVRs).

Luckily, not all banks have the same view when it comes to the ownership structure and overall saleability of the property.


How much can I borrow?

  • First home buyer: 95% of the property value.
  • Investor: 95% of the property value.
  • Low doc: 80% of the property value.
  • Guarantor: With a guarantor, you can potentially borrow up to 100% of the purchase price plus the costs of stamp duty, legal fees and other settlement costs.
  • Rates: Sharp interest rates on both basic and professional packages are available.
  • Multiple townhouse units: If you’re buying a townhouse development, check out the multiple units on one title page for more information.

Some lenders will restrict your LVR to 80% of the property value but some lenders are willing to lend more.

To find out more about townhouse loans and whether you qualify, call 1300 889 743 or complete our free assessment form today.


Why do some lenders have a problem with townhouses?

The reason is two-fold.

Little mass market appeal

Firstly, banks have a lot of data on how well certain property types sell and this is exactly how they rate the risk of taking on a property as security.

Townhouses are viewed as being difficult to sell because they don’t appeal to a wide market.

If the bank had to sell your property in the event that you defaulted on your mortgage, it may take a long time to sell or they may even be forced to accept a lower sale price.

So even though you may have an otherwise strong application, your townhouse loan application could be declined just because of the nature of the property.

Difficulty in valuing

When banks order a property valuation, the valuer relies heavily on comparable sales in the local area.

Although townhouse developments are becoming more popular, they are rare in certain suburbs, particularly when compared to standard strata title units.

This is not so much a concern in large cities and inner-city areas but small towns on the outskirts of the CBD have very few townhouses.

As a result, valuers will take a conservative approach in their final valuation meaning you may likely need to come up with a larger deposit to qualify for the townhouse loan.


I need a townhouse construction loan

Generally speaking, you can borrow up to 95% of the land and construction costs if you’re building no more than 4 units.

So that’s four dwellings side-by-side no matter whether they’re two or three-storeys high.

If you’re planning to construct between 5 to 10 units on separate lots, you may be able to borrow up to 80% as a residential development loan if you’re a strong applicant.

Anything more and you’ll have to apply for a commercial development loan, where you will be restricted to borrowing 70% LVR.

That’s regardless of whether the dwellings are for residential or commercial purposes.

Of course, this comes down to location and the nature of the ownership structure.


What’s the difference between a townhouse and duplex?

Duplex

Duplexes or dual occupancy properties are two or more separate units or dwellings that exist on the one title.

Single-storey duplexes allow for two families to live in separate living spaces with separate entrances.

Double-storey duplexes can allow for up to three (triplex) or four families (quadruplexes).

Townhouse

Townhouses typically form part of a larger planned unit development under stratum title.

They are built side-by-side and each resident is separated by the next with one shared wall.

Under strata, there are common areas that are shared by all tenants in the development such as front and back courtyards, entrances and stairwells.

They usually standard taller as well, some up to 3 storeys high.

The difference is that each dwelling sits on a separate title or share if it’s under stratum ownership.

Freehold townhouses do exist and they offer separate driveways, entrances and garages.

In saying, they are becoming increasingly rare.

Strata townhouses are typically much cheaper than a freehold anyway.

Bear in mind that unlike a duplex, you have to pay strata insurance and administration fees with a townhouse just like most high density units.

This is something you should factor in as both a homebuyer or an investor.


Australians and townhouses

Townhouses like apartment units suit smaller households, offer an urban lifestyle and help owners avoid the high costs of residential land, according to research company IBISWorld.

For the past few years, construction of cheaper dwellings has been driven by population growth and high property prices.

It has been increasingly difficult for first home buyers to save a large enough deposit to buy a standard detached dwelling so townhouses and duplexes are a solution.

Another reason is foreign investor demand.

Despite this, parts of the country have experienced an oversupply of high-density units and, in some cases, townhouses.

This is the reason that some lenders don’t have a strong appetite for these property types.


Do you need a townhouse loan?

Banks change their appetite for units and apartments on a semi-regular basis as a way of mitigating risk in their loan book.

We know which lenders take a less conservative approach to townhouse loans!

Call on 1300 889 743 or complete our free assessment form to discover if you qualify.

  • Eve

    Will we need to have owned other investment property or at least have equity in an existing property to qualify for a 95% investment lend?

  • Hi Eve, there are some lenders that will only allow you to borrow an investment loan at 95% LVR if you have an investment portfolio / you have equity in another property. However, do note that exceptions can be made. Please contact us if you’d like to learn more about this.

  • Dion

    I want to build a 4 unit townhouse and I need to buy land first. The land I find great is 26 acres in size so how much can I borrow for this? I just want to buy land right now and will slowly pay if off and maybe use its equity later to help with the building loan.

  • Hey Dion,
    For a land size of up to 11 hectares or 27.2 acres, you can usually borrow up to 95% of the property value. Do note though that some lenders can restrict your loan to 80%. If you’re planning on using the land equity later to build then you may find the info on our land equity construction loan page helpful so please feel free to check it out:
    https://www.homeloanexperts.com.au/home-loan-articles/land-equity-construction-loan/

  • Castro

    I would like to buy a townhouse with 6 units on the title. I don’t have full financials at the moment and I’m not sure if I’ll wait until I can get them. What loan offer can I expect at the moment?

  • Hi Castro,

    According to the information you’ve provided, you can expect a low doc townhouse loan for 60% of the property value. You may be able to borrow even up to 75% but this will depend on a case by case basis. If it were a max of 4 units on a single title, you may go up to 80% (case by case).