What types of properties are considered risky by lenders?
There are certain factors that could affect your home loan application and it’s not just your credit history. Did you know that there are certain types of properties lenders consider riskier than others? These types of properties could result in your application being declined or other requirements, such as higher interest rates, being applied.
Blogger: Heidi Armstrong, CEO, State Custodians
Student Accommodation
Lenders do not always like student accommodation as they're usually small with shared facilities and there would be a limited amount of tenants to choose from. These residences are typically located near universities and surrounded by student accommodation, therefore investors will possibly have just students who are interested in renting and there could be continuous vacancy periods throughout December/January due to the holiday period.
Serviced Apartments
Properties in serviced apartments are usually rented out over a shorter amount of time compared to traditional leases. To manage this, a management company is typically contracted to manage the changeover of tenants and readying the property for the following tenant. The management company requires that the property is locked into this arrangement for an amount of time and there are restrictions to releasing it. This restriction could mean the property is tougher to sell because the pool of potential purchasers is restricted to people who would like it to stay as a serviced apartment. Therefore, lenders may either not have them as security for a loan or place restrictions.
Vandalised Properties
Although you may assume that you've got a great buy that may need a touch of work to bring it back to a sellable state, lenders need to see that the property that's security for the loan is in a reasonable condition, or, that you have got the funds to do any necessary repairs to enable someone to live in the property. If you do not have a lot of money to spare for renovations, this option may not be the best choice for you.
Rural Areas
As properties in out of city areas usually attract a smaller range of vendors, they're sometimes thought of as a riskier purchase. It is additionally vital that there enough of a requirement for housing in the area so as to draw in tenants.
Company Title
Company title is different to strata title. It essentially means that there's an organization that owns the block of units and holds the title. Instead of buying and holding the title to the apartment you're buying, you get a share in the company that has the unit. This structure can be confusing and as banks consider them tougher to sell, they do not like having them as security for a loan.
If you have a particular property in mind that you would like to purchase, make sure you speak with your lender first. They will be able to let you know what sort of properties they consider acceptable.
About Heidi Armstrong
Heidi Armstrong is the CEO for State Custodians Mortgage Company. Since founding the Company in 2006, State Custodians has grown to become one of Australia’s most respected non-bank lenders. Heidi holds a Law Degree, a Bachelor of Science and a Diploma of Finance and Mortgage Broking Management. An expert in personal finance, securitised lending and the mortgage industry, Heidi is passionate about sharing her invaluable knowledge to educate borrowers.
Widely recognised and respected by industry peers, Heidi was a finalist in the 2012 Australian Lending Awards for the Best Thought Leader. Moreover her Company, State Custodians, has received numerous awards, including Money Magazine’s 2013 Non-Bank Lender of the Year, a ‘5 Star’ CANSTAR rating on four of its main loans for six years running and the prestigious award for Best Overall Customer Service at the 2013 Australian Home Loan Awards (beating all of the major banks, credit unions and other lenders and mortgage providers for superior customer service).