Home Loans For Different Property Types

Buying an unusual property doesn’t always mean you can’t get a home loan. It usually means you need the right lender.

Banks assess properties differently based on resale appeal, valuation risk, title type, location and building characteristics. If you’re buying a serviced apartment, company title property, duplex, studio apartment, rural property or another hard-to-finance home, we can help match you with lenders that may consider it.

Types Of Properties Lenders May Consider

Apartments and units

• Studio apartments
• Inner city units
• Serviced apartments
• Student accommodation
• Dual key apartments

Title and legal structure issues

• Company title properties
• Stratum title properties
• Other non-standard title types

Land and location-based risks

• Vacant land
• Large rural properties
• Countryside homes
• Mining towns
• Postcode restrictions areas
• Flood-zoned properties

Unique building types

• Heritage-listed homes
• Warehouse conversions
• Hotel conversions
• Luxury residential
• Multiple units

Building, renovation and development scenarios

• Owner-builder construction
• Off the plan units
• Renovations
• Dual occupancy or duplexes

How Do Banks Assess Properties?

When banks consider a property as security for a loan, they are ultimately assessing the likelihood that they will lose money in the event that the property has to be sold to repay the debt.

The following are the main considerations that a bank takes into account.

Loan to Value Ratio (LVR)

The LVR is the amount you’re borrowing as a percentage of the value of the property.

Generally speaking, the higher the risk of the property, the lower the LVR you will be eligible for.

Often, you can borrow 100% for normal houses but may be restricted to borrowing as little as 70% LVR with certain unique properties.

In some cases, the only way to get approved is to either come up with a higher deposit or use a guarantor as a no deposit home loan soluation.

Saleability

Properties that have limited appeal to the general public may take longer to sell so they’re less desirable as security for a home loan.

Banks always want a property that can be sold quickly in the event that the loan cannot be repaid.

Stable value

If a property reduces in value significantly then the bank could make a loss if they had to sell the property to repay the loan.

Banks aren’t in it to make a capital gain from selling your property – they determine risk as if they were to sell the property today.

If the valuation points to poor performance for your property over the past few years, the bank will likely restrict your LVR.

Legal issues

Some property types such as company title units don’t have a normal certificate of title so there may be legal issues in the event that the bank has to sell the property to recover their loss.

Note: When trying to get approved for a home loan secured by an unusual property, our mortgage brokers always present a strong case to the lender.

The Two Main Types Of Property Valuations

There are two types of valuations that are used when valuing a property.

Which one is used will depend on the property and the discretion of the valuer.

In scope

The so-called PropertyPro template was developed by the Australian Property Institue (API) as a way for valuers to complete a valuation quicker based on set parameters.

Otherwise known as a short form or in scope valuation, it’s flexible enough to be used for most residential valuations.

Banks prefer short form because it’s a lot easier to read and they can quickly check off whether the property meets their lending criteria.

Making life easier for the banks means there’s more chance that your home loan will be approved.

Out-of-scope

Out-of-scope tend to be longer valuations because they take into account more characteristics about the property.

They also tend to be expensive and banks don’t like them because it means more work to ensure that they can accept it as per their lending policy.

Out-of-scope is common with commercial properties because a lot more has to be considered in the valuation such as the revenue potential of operating a business on the premises.

However, some residential properties have features and characteristics that are a little outside the square as well.

What Methods Are Used When Valuing A Property?

Highest and best use

Due weight is given to the land’s potential of being used for other purposes other than residential.

This is based on current zoning and local council planning rules only and not any potential changes to these rules.

Like banks, valuers aren’t interested in speculative pricing as developers and investors are.

For example, if planning rules allow for the erection of buildings (think rural properties) or for certain commercial activities to be undertaken, the valuer will take this into account in their final valuation.

It’s particularly important for developers or investors considering “land banking” a vacant commercial lot to understand.

When comparing property sales, the valuer needs to compare properties that have similar highest and best use.

Once the highest and best use is identified, the valuer then needs to determine the most likely that a vendor and purchaser would recognise at the date of valuation:

• The use must be legal.
• The use must be within the realm of probability (it must be likely and not speculative).
• The use must be the kind to come within the imagination of a particular purchaser.
• The use should be economically feasible.

Market evidence and comparability

When comparing properties, valuers rely on actual sales, not properties that are currently on the market:

• They consider properties with similar characteristics, quality and located in the same area.
• The sales that took place would need to appeal to the same segment of the market for the property being valued.
• Land use and potential utility should be similar.
• Location should appeal to the same market.
• >Similar title and tenure.
• Land topography, shape, slope and view can provide scope, or present difficulties, for development.
• Similar amenities and services e.g. comparing a rural property which has town water to another that has access to town water.
• The date of the transaction and the date of valuation should be close, with some adjustment applied as per the passing of time – a large adjustment for a large period of time would not be good evidence.

No two parcels of land are similar, therefore adjustments need to be made. There is no hard and fast rule.

However, the most reliable comparable sales are the ones that require the fewest and least complex adjustments.

Buying A Property That May Fall Outside Standard Lending Policy?

Our brokers understand how lenders assess non-standard properties, including factors such as location, title, valuation and property type. We can help you identify which lenders may be a better fit and what to look out for before you make an offer.

If you already have the property address, we may be able to indicate how lenders are likely to view it and flag any policy concerns upfront.

Call us on 1300 889 743 or complete our free online assessment form to take to one of our brokers today.