HOME > BLOG > Home Loan Advice > Properties Lenders Consider Risky

You may not realise that factors other than your credit history could affect your chances of obtaining a home loan.

You may not realise that factors other than your credit history could affect your chances of obtaining a home loan.

There are certain types of properties lenders do not like, which could result in your home loan application being declined or certain provisions implemented, such as a higher interest rate.

Student Accommodation
Student accommodation is often considered a risky investment by lenders as they are often very small with shared facilities and there would only be a small pool of potential tenants. These apartments are usually located close to universities and surrounded by other student accommodation, so investors will most likely only have students interested and there may also be constant vacancy periods during December/January when university have holidays. 

Serviced Apartments
Properties in serviced apartments are often let out over shorter periods of time than normal leases. To manage this a management company is usually contracted to manage the changeover of tenants and readying the property for the next tenant. The management company will require that the property is locked into this arrangement for a set period of time and there can be restrictions to releasing it so that someone can purchase and live in it themselves long term. This restriction may mean that the property is harder to sell as the pool of potential purchasers is restricted to those who wish it to remain as a serviced apartment. Due to this lenders can be cautious and either not accept them as security for a loan or place restrictions in terms of how much they will lend.

Vandalised Properties
Any points you have?Although you might think that you have found a bargain that will require a bit of work to get it back to a good state, lenders want to see that the property that is security for the loan is in good condition, or,that you have the funds to make any essential repairs to allow someone to live in the property. If you are on a tight budget then this may be difficult.

Shop/office attached
Some dwellings may have an office or shop attached to it. If this is the case, lenders may consider it a commercial property and the home loan application requirements and lending options may change.This can be true even if the zoning is residential. Valuers will make a note of any commercial improvements to the property and this will alert the lender who may not be comfortable to lend funds for the property under their normal residential lending rates. Higher commercial interest rates may be the only option.

Rural Areas
As properties in out of town areas often attract a smaller number of buyers, they are usually considered a riskier purchase. It is also important that there enough of a demand for housing within the area in order to attract tenants.

Company Title
Company title is quite different to strata title. It basically means that there is a company that owns the block of units and holds the title. Instead of buying and holding the title to the apartment you are purchasing, you buy a share in the company that represents the unit. This ownership structure can create confusion and due to this banks deem them harder to sell and thus don’t like having them as security for a loan.

Heritage Listed
Lenders typically don’t like these properties due to the restrictions that it imposes. Their concern is that they maybe harder to sell and get their money back if borrowers default.Potential purchasers may be put off by the fact that they maybe unable to make improvements to the property,and if they do it will be expensive as it has to comply with the restrictions of the heritage listing.

If you have decided on the type of property you would like to purchase, ensure you make speaking with your lender your first priority. They will be able to give you an idea of what types of properties they provide finance for.