Borrowing for an Apartment

There are a lot of arguments both for and against investing in apartments. Investors on both side of the fence are passionate about their positions.

Similarly, the Banks have widely differing rules on the value of apartments to them as security for lending. Don’t make the mistake of thinking that just because your own bank won’t lend against a particular apartment that another one will not. The criterion varies between banks more widely when dealing with apartments than any other type of security and the policies often change.

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Below are some general guidelines on what you can expect when looking to borrow against an apartment and the type of questions which will be asked:

Where is the Apartment?

Inner-city is the least preferred option from a bank-policy perspective. The sheer number of apartments within this area makes the banks concerned about “over-supply” if they ever have to dispose of the asset. City-fringe and suburbs are more attractive to the bank

How many Apartments are in the complex?

As with the geographical area above, the more there are in the building the less the bank likes it.

How big is the Apartment?

In the case of apartments bigger is better. The bigger to internal floor area the more “attractive” the property is to the bank

How many bedrooms are there?

This ties in with the overall size of the apartment and some banks measure how much they will lend based on a combination of the two. For example a 3 bedroom apartment of 60m2 is less desirable to a bank than a 2 bedroom apartment of 60m2

Purpose built or refurbished?

Purpose built is preferred.

Freehold or Leasehold?

Freehold much better for the Bank as there are going to be no unexpected increases in the ground-rent in the future.

The Bottom Line

The best you can expect to get for an Apartment, given the right combination of all of the above, is a loan of 80% against the value.

Borrowing for an Apartment can be tricky and it pays to make sure you look at all of the borrowing options, and know the rules.

Read other articles by Jon Purdey:

Lo Doc Loans – Old Products Made New

– The Good News about Bad Credit

– I can’t Afford a Deposit