First home buyers locked out of city pads

Studios and small one-bedroom apartments close to central business districts are out of reach for many first home buyers, with some property agents pointing the finger at banks.

That’s because the smaller the apartment under the 50sq m benchmark, the harder it is to get a home loan.

In the past, major lenders have not been keen on writing mortgages for such small apartments in the belief that they pose a financial risk and are difficult to on-sell.

But agents say the banks are out of touch.

“There seems to be a large spectrum of people trying to access the inner city and these restrictions go against the whole grain,” David Giezenkamp, a director at Sydney’s inner west agent Callagher Estate Agents, told the Sydney Morning Herald.

Adam Sparkes, a group sales manager at Frasers Property, said that buyers typically needed deposits of between 20 percent and 30 percent for apartments under 50 square metres, which were very popular.

So in cities desperate for affordable housing close to the CBD, why are some of the cheapest options out of reach for so many first home buyers?

A spokeswoman for Mortgage Choice said lenders and their mortgage insurers often work to a set range of criteria when deciding whether to approve a home loan.

“Some have restrictions around the property’s size, location in terms of the postcode, whether it is a high density building,” she said.

“Floor size restrictions are primarily driven by the mortgage insurers, who won’t insure anything under [a certain size] due to its limited saleability,” she says, adding that the size of a property often excludes any car parking space, balcony or storage space.

Applicants should be aware of these rules before heading out on the property hunt, according to Michelle Hutchison, spokeswoman for RateCity.

“Or they may end up heartbroken when the lender refuses to finance their loan application for a property outside the specified criteria,” she said.

A number of strategies exist to help potential borrowers meet serviceability guidelines including maintaining current financial information, reducing credit card dependence and saving for a larger deposit.

“Shopping around for a mortgage is still one of the best ways to find the right financial fit for your circumstances. RateCity allows you to compare home loans from hundreds of lenders and research the various conditions and lending criteria, so spend half an hour doing the research before you get your heart set on a property,” Hutchison said.  

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