Many home buyers dream of a huge property with expansive open-plan living, a sprawling backyard and multiple bathrooms. But with house prices increasing dramatically, this isn’t always possible, so many are turning their attention to the latest property trend — micro apartments.
Capital city dwelling values lifted 4.2 percent in the three months to August, according to RP Data. Particular cities, such as Sydney and Melbourne, have seen even greater growth. In turn, those seeking home loans are considering their options carefully.
Australians purchasing property are turning towards micro apartments in order to climb the property ladder. While compact living has its perks, could it be playing havoc with buyers’ finance options?
Small properties cause large problems
Apartments are popular with a range of buyers. For some, a strong desire to live in the inner city means this style of living is ideal.
While interest rates are low, demand for property and a shortage of stock in key capital cities is impacting housing affordability. Accordingly, saving up enough money in a high-interest savings account for a loan deposit can seem like a race against the clock. For this reason, apartments, rather than houses, can be a popular stepping stone for many first-time and even second-time buyers.
Micro apartments, which take up less than 50 square metres, are gaining in popularity, particularly in cities such as Melbourne and Sydney, which are pressed for space. But not all lenders are willing to take a mortgage over these dwellings. This could place buyers in a sticky situation, should they fail to secure the appropriate finance.
What’s the big deal?
Those embarking on the home buying process might be wondering why securing finance for micro apartments is such a big issue.
When lenders — from big banks to smaller organisations — provide a home loan to a borrower, they need to carefully consider what might happen in the future. The worst-case scenario is the borrower defaults on the mortgage, requiring the lender to sell the property, which they have taken a security interest over.
The problem with micro apartments is they can be harder to sell, making lenders very hesitant to lend against them.
According to News.com.au, the general consensus among Australia’s biggest home lenders is properties less than 30-50 square metres are a mortgage no-go. Within this bracket, lenders adopt different views. For instance, ANZ told the news source they would let borrowers take out a loan on micro properties 30 square metres or greater, but a 40 percent deposit is required. Westpac‘s minimum property size is 50 square metres, though it has discretion for certain areas. Most lenders indicated that anything less than 40 square metres raised concerns.
In some instances, it’s the features that a micro apartment offers that could be the deciding factor in securing finance.
Jessica Darnbrough, Mortgage Choice Spokeswoman, offered some useful advice. Speaking to the Financial Review, she said: “[L]enders may be more inclined to lend on a small 30-square-metre property if it has its own bathroom and kitchenette.”
“Mortgage insurers, on the other hand, are often not as flexible. Generally speaking, mortgage insurers will not service a loan for a property that is smaller than 40 to 50 square metres.”
If you’re looking to purchase a compact dwelling, make sure you’re clued up with your lender’s practices regarding micro apartments!