As Australia’s population continues to grow, so too does the number of apartments. According to the 2021 Census, apartments made up 16% of all private dwellings across the country and housed 10.3% of Australians (over 2.5 million). However, they accounted for almost 31% of the total growth across all Australian dwellings between 2016 and 2021.
In the current climate of sliding property prices, Cotality’s Home Value Index for October found that unit values hadn’t been hit as hard as those of homes nationally, sliding 2.2% so far this year compared to a 3.2% drop for houses.
It goes without saying that you can take out a home loan for an apartment, but they’re a bit different to your standard mortgage product for a house. Lenders will be weighing up a range of additional factors before approving your loan.
How does a home loan for an apartment work?
An apartment loan is a standard home loan used to buy an apartment. You’re approved for a lump sum to buy the property alongside your deposit, then repay it in instalments with interest and fees over a term of up to 25 to 30 years. You can choose a fixed or variable interest rate on your mortgage, the same as with a house.
The difference is in how lenders assess the security for the loan. Apartments can be harder to sell than houses and can come with more complicated titles, so lenders tend to see them as higher risk. Not every lender will finance every type of apartment, and your deposit, the apartment’s size and its location can all affect whether you’re approved.
How much deposit do I need for a home loan for an apartment?
Most lenders want a deposit of at least 20% of the property’s value for an apartment, though some will accept as little as 10% in the right circumstances. Your lender and financial profile matter, but the biggest factors are the apartment itself: its size, its type and its location.
Small apartments in sought-after areas tend to need a larger deposit than bigger apartments in less popular suburbs, and the more expensive the apartment, the more deposit you will likely need. A lower deposit is most likely on larger apartments with better prospects of capital growth and resale.
What are LVR and LMI?
Your loan to value ratio (LVR) is your loan as a percentage of the value the lender puts on the property. If you buy a $450,000 apartment with a 20% deposit ($90,000), you’d be borrowing $360,000, which is an LVR of 80%. With a 10% deposit ($45,000), your loan goes up to $405,000 and the LVR increases to 90%.
Once your LVR goes above 80%, lenders usually require lenders mortgage insurance (LMI). LMI protects the lender, not you, and you can pay it upfront at settlement or add it to your loan. The cost depends on the property value and the size of your deposit, but can reach tens of thousands of dollars for particularly small deposits.
Saving a 20% deposit may be mandatory on certain apartments, such as studios, as some dwelling types may not qualify for LMI at all. Many lenders also cap off-the-plan purchases at 80% LVR.
Why do lenders treat apartment loans differently?
Your property is the security for your loan. If you can’t repay it, the lender can sell the property to recover the debt, so lenders look closely at how easily it could be sold and what it would fetch. Apartments tend to score worse on both counts.
Much of a house’s value sits in its land, which is scarce and tends to appreciate. Apartments, particularly small ones or those in high-density areas, can be harder to sell and are more exposed to oversupply. Shared ownership titles also add legal complexity.
Home loans for apartments vs houses
| Apartments | Houses | |
|---|---|---|
| Perceived lender risk | Higher | Lower |
| Ease of resale | Can be harder to sell, especially small apartments and those in high-density areas | Generally easier, as land is scarce and tends to appreciate |
| Typical title | Strata title. Company or stratum title is less common and can put lenders off | Torrens title |
| Minimum size | Many lenders set a minimum, commonly around 40m2 to 50m2 | Not usually a barrier |
| Postcode restrictions | Some lenders cap lending in certain postcodes or within a single building | Postcode restrictions can apply, but building limits do not |
| Typical maximum LVR | Often lower: around 80% for studios and off-the-plan, and up to 90% for many one- and two-bedroom apartments | Up to 95% with some lenders |
| LMI | Usually applies when the LVR is above 80%, but may not be available on some apartments, such as studios | Usually applies when the LVR is above 80% |
These are general patterns; every lender sets its own policy. An apartment that one lender declines may meet another lender’s criteria, which is where a Savvy broker can help.
What apartments will I be able to finance?
Lenders will finance many types of apartments, but the conditions can differ significantly depending on which type you’re buying:
- One-bedroom and larger apartments: generally the easiest to finance, as they meet most lenders’ size requirements and are usually assessed on standard home loan terms.
- Studio apartments: with no separate bedroom, studios are harder to finance. Some lenders won’t lend on them, and others require a larger deposit or a minimum size, often above 40m2 or 50m2.
- Off-the-plan apartments: buying before the building is finished adds risk, because the lender’s valuation on completion may come in below the price you agreed to pay. Lenders often apply tighter conditions, such as a lower maximum LVR.
- High-rise apartments: some lenders apply extra conditions to taller buildings, such as a larger deposit or a lower maximum LVR.
- Serviced and student apartments: these aren’t treated as standard residential properties, so they can be harder to get over the line. Some lenders decline them, while others require a larger deposit, particularly if you’re buying as an investment.
Some postcodes a no-go for lenders
"Lenders can restrict lending in certain postcodes. These are often those with a lot of apartments, rural areas or mining towns. If you’re buying in a restricted postcode, the lender may decline the loan, ask for a bigger deposit or limit how much you can borrow. Each lender decides which postcodes it restricts, and restrictions can apply to houses too."
Other factors impacting your apartment loan approval chances
- How much the lender already has in the building: some lenders limit their exposure to a single development. Once a lender has funded a certain share of the apartments in one complex, it may decline any more in the same building.
- How the apartment is used: lenders generally prefer apartments designed for residential use. Apartments managed as part of a hotel or resort, such as serviced apartments, may not qualify.
- Your documentation: it’s highly unlikely that you’ll find a lender willing to offer a low doc home loan on a small or studio apartment, as the combined risk is too high for many lenders.
Because lender policies differ, checking an apartment against them before you make an offer can save you from a rejected application or a surprise deposit increase.
Home loan interest rates for apartments
Apartment loans often carry the same interest rates as loans for houses, although some lenders charge more for higher-risk apartments, such as high-rise, serviced and student apartments. The rate you’re offered will depend on factors including:
- The size of your deposit
- Your savings history
- Your income and expenses
- Your credit score
- The type of interest you choose (fixed or variable)
- Your current assets and liabilities
Even small differences in rate add up over the life of a loan, so it pays to compare options before you apply.
Finding the right interest rate for an apartment loan
Georgia is looking to purchase an apartment. The one she decides on costs $600,000, which she can buy with a 20% deposit ($120,000) and a $480,000 loan. She starts comparing options on the market to see how much they might cost her each month and overall.
| Interest rate | Monthly repayments | Total interest paid | |
|---|---|---|---|
| Lender #1 | 6.45% p.a. | $3,226 | $487,804 |
| Lender #2 | 6.60% p.a. | $3,271 | $501,316 |
| Lender #3 | 6.75% p.a. | $3,316 | $514,913 |
| Lender #4 | 6.90% p.a. | $3,362 | $528,594 |
| Calculations are based on a $480,000 loan over a 25-year term. Interest rates are for illustrative purposes only and do not necessarily reflect the rates you will be offered on your apartment loan. | |||
Georgia sees that the difference between 6.45% p.a. and 6.90% p.a. will cost her almost $41,000 over the life of her loan. She decides to go with Lender #1, provided it also finances an apartment of her size, because the cheapest rate is no use if the lender won’t approve the property.
Case study: same apartment, different lender policy
Renata has found a one-bedroom apartment in Adelaide for $430,000. It has an internal floor area of 42m2, not counting the balcony or car space. She has saved a 20% deposit ($86,000) and wants to borrow $344,000.
Her bank, where she has a savings account, tells her it won’t lend on apartments under 45m2. She decides to speak to a broker about whether she has any other finance options, as she doesn’t want to look for a bigger, more expensive apartment.
Her mortgage broker checks the apartment against a range of lender policies and finds one with a 40m2 minimum, so Renata’s apartment is within its size limit. The same deposit and LVR of 80% apply, and her application is approved.
Because the broker checked lender policies first, Renata didn’t have to submit a string of applications to find out which lenders would accept the apartment. Multiple credit applications can reflect poorly on your credit file, so checking policy before applying can protect your credit score.
This case study is illustrative only and does not represent a real customer. Lender policies change, so check with your broker for the current requirements.
How to apply for an apartment loan with Savvy
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Submit our online application
Fill out our form, telling us about yourself and how much you want to borrow.
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Supply your documents
Provide us with the info and documentation we need to verify your profile.
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Chat to your broker
Your Savvy specialist will give you a call to discuss your apartment finance options.
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Get pre-approved
We’ll press ahead and let you know how much you’ve been pre-approved for.
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Choose and buy your apartment
Find the apartment you love and have your bid or offer accepted.
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Formal approval
From there, we’ll get the ball rolling with submitting your formal application for approval.
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Settlement and sign off
Settlement takes a few more weeks, but once that’s done, the apartment is yours!
