Puzzle Finance Blog

Too small to buy?

  • "Almost impossible" to secure finance for tiny apartments
  • Buyers may need a larger deposit

Thinking of buying a tiny apartment to get on the property ladder? It may be tougher to get a loan than you think.

Buying a small inner-city apartment or bedsit could be "almost impossible" according to Scott BJ principal Scott Banister-Jones because almost all major banks and lenders won't grant loans for properties smaller than a certain size.

"I have come up against this case time after time where a buyer will eagerly put in an offer on an inner-city apartment with the sale subject to finance approval by their bank," Mr Banister-Jones said.

"After having their offer accepted they then proceed with the process of obtaining finance [but] come unstuck as the majority of banks won't lend them any money due to the size of the apartment."

Mr Banister-Jones said there was a "huge" demand for bedsit properties from first home buyers and investors because they were cheap and close to everything.
"But unless you’ve got cash it's almost impossible to buy because the banks won’t lend to you," he said.

Home Loan Experts mortgage broker Hank Hong said most banks are happy to lend on places bigger than 50sq m, but on anything from 25-40sq m lending would be restricted to about 60 -80 per cent and "good luck" on anything less than 25sq m.

"That's mostly student accommodation and the banks don’t want to touch it because the re-sale is too hard," Mr Hong said.

But Mr Hong said there was strong demand for small apartments, particularly from investors, as they were close to all of the main amenities, had high rental yields, and were mostly positively geared properties.

Property investor Lisa Ferguson was stung by the industry-wide policy recently after making an offer on a 34sq m inner-city apartment.

Ms Ferguson had been given pre-approval in writing by one of the major banks but her offer was not accepted because the property was too small. She said as someone who had lived in Japan for several years she did not even consider the size of the apartment would be an issue.

"It is small - but if it's for a FIFO worker who doesn’t really care because they’re not there all the time - then its fine," she said. "I was just shocked; how do these places get approved to be built if you can’t get finance for them?"

What do the banks say?

A spokeswoman for Westpac, which only lends for properties larger than 50sq m except in certain areas, said anything below 40sq m was a concern because of saleability. 

NAB lend for properties bigger than 40sq m and take size into consideration when granting a loan.

Bankwest’s standard lending policy is for a minimum property size of 35sqm but they also consider a balcony, courtyard or car space when measuring the total size of the dwelling while most banks consider only the internal living area. A spokesman said they might consider lowering the limit in the future if accommodation and development standards and trends changed.
ANZ lends to properties bigger than 30sq m with a 40 per cent deposit.

The Commonwealth Bank has no restriction based on size but a 20 per cent deposit is required for studio apartments.

Posted by Claire Bickers - Perth Now on 26th February, 2013 | Comments | Trackbacks

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