How to get a home loan for an apartment
Dominic Beattie
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- Lenders often impose stricter conditions on apartments because they carry higher resale and market risks compared to houses.
- Factors like apartment size, postcode restrictions, title structure, and off‑the‑plan risks can significantly affect your required deposit, loan‑to‑value ratio, and overall ability to secure financing.
Lenders usually aren’t too picky about the type of property you’re buying. Whether it’s a house, townhouse, duplex, or apartment, you can apply for a residential home loan. These loans also cover vacant land, investment properties, and even building projects through construction loans.
Standalone houses often hold more value than apartments because the land itself can appreciate over time. However, a modern apartment in a prime location - say, close to the city - can be just as strong as loan security as a larger home in the 'burbs, as long as they have similar resale value.
But there are some unique risk factors that apply to apartments that could affect the lender’s decision to give you a loan.
Savings.com.au’s two cents
No matter what type of property you're getting a home loan for, lenders always aim to minimize risk. They prefer properties that can be resold quickly if repayments stop. Smaller apartments are often harder to sell, with fewer buyers, and unique risk factors can further affect approval.
The same rules apply whether it’s an apartment or a house: save at least a 20% deposit, research thoroughly, and present yourself as a low‑risk borrower.
What to consider when getting a loan for an apartment
1. The size of the apartment
If you're eyeing a compact apartment, be prepared for stricter lending requirements and higher upfront costs.
Apartments under 40 square meters (excluding balconies and car spaces) often face tougher lending conditions. This is because lenders need to be confident that they can recover the debt if you default on the loan - and the market for smaller apartments tends to be, well, small.
To mitigate this risk, lenders may require a bigger deposit for smaller apartments, particularly studios. These kinds of properties may not qualify for Lenders’ Mortgage Insurance (LMI), which usually helps borrowers with a deposit of less than 20%.
See more: Guide to lenders' minimum area sizes
2. Postcode restrictions
Lenders base loan approvals on risk. If they see a property as too risky, they may limit or deny financing to avoid overexposure.
High-density areas with many apartments can be riskier because oversupply reduces scarcity, making resale harder and returns lower. For example, Brisbane in 2017 saw unit prices drop to a three‑year low due to oversupply. In response, banks capped loans in certain “high‑risk” postcodes at 80% of property value.
3. Title of the property
The title of a property – essentially its legal ownership status – is an important factor lenders consider when approving loans. While strata title is most common for apartments, alternatives like community or company titles can raise concerns.
Company title properties, for instance, are owned by a company with buyers holding shares. They’re harder to sell and often subject to first‑refusal rights, which can delay sales. Similarly, stratum titles or tenants‑in‑common arrangements may be seen as riskier due to potential resale delays.
4. Student or serviced apartments
Student and serviced apartments may look appealing with guaranteed rental income and lower deposit requirements, but mortgages for these properties are harder to secure.
Student accommodation is often difficult to resell, especially in slow markets. Serviced apartments are less attractive as loan security due to mandatory management agreements, pooled rental income, and past cases of poor returns.
Many lenders avoid these properties because of higher risks, limited capital growth, and resale challenges. University apartments are particularly restricted, as they can only be rented to students, limiting their broader appeal.
5. Off-the-plan apartments
Off-the-plan apartments can be trickier when it comes to securing a loan, mainly because of the risk that the property might be worth less than expected by the time construction finishes. To reduce risk, many lenders cap loans at 80% LVR.
Since builds often take 18–24 months, lending policies can change during that time, and pre‑approvals may need to be reviewed. Market shifts can leave buyers unable to secure expected financing, sometimes even risking their deposit, so it's important to be very cautious when buying off-the-plan.
What makes an apartment loan different from a home loan?
Although both loans finance residential property, lenders treat apartments differently from houses because of the risks involved.
- Deposit & Loan-to-Value Ratio (LVR): Apartments often require larger deposits (20–30%) and lower maximum LVRs compared to houses, which can sometimes be financed up to 95%.
- Resale potential: Houses generally have stronger resale value because land appreciates over time. Apartments, especially studios or those in high-density developments, can be harder to sell and may attract fewer buyers.
- Market risk: Apartments are more vulnerable to oversupply in certain areas, which can drive down prices and make lenders cautious. Houses, by contrast, benefit from the scarcity of land.
- Title complexity: Apartments usually come under strata or other shared ownership titles, which can add legal and resale complications. Houses typically have simpler freehold titles.
- Lender restrictions: Some lenders impose stricter conditions on apartments, such as capping loan amounts, requiring higher deposits, or limiting loans in “high-risk” postcodes.
Roadblocks to apartment financing
One of the most common misconceptions in property is that a "pre-approval" applies equally to all dwellings. In reality, lenders have vastly different "appetites" for apartment security.
If you’re eyeing an apartment, here are the three critical roadblocks to watch for:
The Internal Square Metre Rule: Lenders are meticulous about "living size" (excluding balconies and car spaces). Many banks set a hard floor at 38 sqm to 45 sqm. Fall just one metre short, and a lender might reject the security or slash your Loan-to-Value Ratio (LVR) to 60%, suddenly requiring a much larger deposit.
Postcode Caps: Certain postcodes are flagged for "concentration risk." While one lender might lend up to 95%, another may cap all lending in that suburb at 80%.
Apartment complex: If the bank already holds mortgages for 30% of the units in that complex, they may refuse to lend another cent to avoid over-exposure.
Types of apartments and their impact on financing
When considering buying an apartment, it's important to understand the different types and how they affect financing. Lenders have varying requirements for each type due to perceived risks and market factors:
Studio apartments
- Description : Studio apartments are compact units featuring a combined living, sleeping, and kitchen space, often under 50 square meters.
- Financing considerations : Due to their small size, studios often face stricter lending criteria. Many lenders require a higher deposit (sometimes above 20%) and may impose a minimum square footage to qualify for a standard loan. The smaller the unit, the fewer the lenders willing to finance it, particularly if it falls below 40 square meters.
One or two-bedroom apartments
- Description : These are standard apartment configurations, with one or two separate bedrooms and more defined living areas.
- Financing Considerations : These apartments are generally easier to finance compared to studios as they meet most lenders' minimum size requirements. They often qualify for standard residential mortgage terms with typical deposits starting from 10-20%, provided the building is not seen as high risk.
High-rise apartments
- Description : Apartments located in high-rise buildings, often in urban or central business districts.
- Financing considerations : High-rise buildings may trigger lender caution due to concerns about market oversupply or structural issues. Lenders might impose higher interest rates, require larger deposits, or limit the loan-to-value ratio (LVR) if the building exceeds a certain number of stories. Specific criteria can apply to buildings over 10 stories, impacting the mortgage terms.
Holiday (serviced) apartments and student apartments
- Description : These are properties often rented out to short-term or student tenants, sometimes part of managed complexes with strict use restrictions.
- Financing considerations : Lenders typically view these properties as riskier due to fluctuating occupancy rates and limited resale markets. Financing can require a deposit of 30% or more, and some lenders might decline outright to finance these properties. Interest rates may also be higher to compensate for the increased perceived risk.
Off-the-plan apartments
- Description : These are apartments purchased before construction is complete, often based on architectural plans or developer displays.
- Financing considerations : Buying off-the-plan involves additional risks, such as potential construction delays, market fluctuations, and changes in property value upon completion. Lenders may offer a construction loan or pre-approval with stricter conditions, and the full loan approval may not occur until the property is near completion. Some lenders require a higher deposit or demand a valuation before finalising the mortgage.
The table below summarises the typical differences between studio, 1–2 bedroom, and off‑the‑plan apartments, giving you a quick snapshot of what to expect.
| Apartment Type | Minimum Deposit | Typical LVR | Common Lender Requirements |
|---|---|---|---|
| Studio | 20–30% | ≤80% | Limited lenders |
| 1–2 Bedroom | 10–20% | ≤90% | Standard loans |
| Off-the-plan | 10–20% | ≤80% | Pre-approval re-check |
Buying an apartment or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner-occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 5.95% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| ||||||||||||
6.23% p.a. | 6.23% p.a. | $3,072 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
Tips on getting approved for an apartment loan
While it may not be as easy to get a loan approved for a small apartment as it is for a larger apartment or a house, there are a few things you can do to improve your chances of getting your home loan approved.
Have a minimum 20% deposit saved
No matter what type of property you’re buying, the bigger your deposit is, the better your chances are of being approved for a loan. The recommended deposit amount is 20% of the value of the property. This is because if you borrow more than 80% of the value of the property, you’ll often have to pay lenders' mortgage insurance (LMI), which protects the lender from the risk of you defaulting on the loan.
Look at apartments larger than 40 square metres
Because apartments any smaller than this are very hard to get finance for, the bigger the apartment is, the better. But if your budget is limited to studio apartments, you may still have options.
There is likely to be a small number of lenders willing to offer loans for studio apartments. A mortgage broker may be able to help match you up with these specialist lenders.
Beware of off-the-plan purchases
Off-the-plan apartments always come with an element of risk, which is why borrowers should seriously weigh up all the pros and cons before buying one.
When you’re buying off the plan, as long as you have a 10% deposit, the developer is likely to hand over the contract. They probably won’t look into your finances and see if the amount you’re borrowing is right for your situation, so there's a chance you may run into trouble when you go to get finance and the bank doesn’t approve you for the loan. If that happens, the developer may take your deposit and could even sue you if the apartment sells for less than what you had agreed to pay for it.
Do your research
To find the right property and minimise the level of risk you present to potential lenders, it’s important to do your research first. Lenders will take into consideration the location of the property, features of the area, market trends, and the sales performance of similar properties in the area to determine how easy (or difficult) it will be to sell in the future.
If the property you’re purchasing ticks all the right boxes for resale potential, a lender may be more willing to give you a loan.
Go guarantor
If you’re a first home buyer and the deposit and loan-to-value ratio (LVR) restrictions imposed by lenders are restricting your ability to qualify for a loan, consider asking your parents to go as a guarantor.
Having a guarantor involves your parents essentially promising to take responsibility for the loan in the event you default, and perhaps also listing their property as security on the loan. Under such an arrangement, you may even be able to borrow up to 100% of the purchase price. But having a guarantor on a home loan can come with added risks for both you and the guarantor, so ensure you do your research.
Frequently Asked Questions
Investing in apartments can be riskier than investing in a freestanding home, but it all depends on a variety of factors, especially location. Apartments can be easier to rent out than standalone houses, but they often don't rise in value as much as houses.
As a general rule, properties with an element of scarcity and properties that are well-located will generally make a good investment. Consider the services of a buyer's agent for expert personal advice on property investment.
Like any other property, buying an apartment often requires a considerable down payment. However, if you're a first home buyer, you could technically use the First Home Owners Grant (FHOG) as your full deposit, although such grants are typically restricted to newly-built properties. But on its own, the FHOG is probably not going to be enough to cover the amount required for the deposit. Otherwise, you could consider using a guarantor to secure a home loan if you have no deposit saved.
The key to choosing an apartment that will deliver strong capital growth is to look at it through the eyes of a future buyer. A decent size, location, aspect, parking, quality construction and an element of scarcity will generally appeal to buyers.
Like houses, an apartment can also have depreciation costs, which, if you're an investor, you may be able to claim as a tax deduction.
Apartments and houses both come with benefits and drawbacks - neither one is necessarily better than the other. Choosing between an apartment or a house depends on your finances, your lifestyle, and your property goals. In terms of affordability, apartments generally have the upper hand, but houses have higher average rates of value growth.
This entirely depends on which apartments and houses you're comparing. Apartments can be much harder for a burglar to break into than houses, particularly if they're on a higher floor and in a building with lots of security. While there's been a spate of structural issues with newly-built apartment buildings around the country recently, houses can be just as prone to building defects - we just don't hear about them in the media as much because a high-rise tower with serious issues will typically grab more headlines than a single house in the suburbs.