Hurdles to watch out for when acquiring a bank loan

Nicola TrotmanDecember 7, 2020

Property Observer was recently informed of a first home buyer who had received preapproval with Bankwest on a loan and after the valuer inspected the property, they chose to decline the loan as it was within 100 metres of high-tension power lines. This came as a surprise to the new buyer who was unaware that this was even something that could affect their ability to buy a property.

The property was said to be outside QBE insurance guidelines.

This led Property Observer to ask a range of mortgage brokers and property advisors to provide a list of obstacles that may come in the way of you and your bank loan, so that you don't find yourself in the middle of any nasty surprises.

“The important thing is if there is a risk with either the security or you, then your highest criteria for your loan search does not come down to the lowest interest rate, rather which lenders policies will mean that you satisfy their risk tolerance and that of the Lenders Mortgage Insurance (LMI) they use,” said director of Investors Choice Mortgages Jane Slack-Smith.

Obstacles include:

  • Bushfire prone areas and flood areas
  •  Results in credit score

“A minor default on a telephone bill or a late gas payment could stop a borrower from obtaining finance,” Mortgage Choice spokesperson Jessica Darnbrough explained.

  • Buying in a mining town
  • Properties under 50 square metres and studio apartments

“Some lenders will not lend on a unit located in a high density apartment block. High density apartment blocks are usually three to four stories high and have more than 30 units,” Darnbrough continued.

  • Heritage listed properties
  • Uninhabitable to live in “as is” – It could be a renovators dream but financing is difficult to obtain if the property is lacking a kitchen or a bathroom
  • High tension power lines

Each mortgage insurer differs and some have a 100 metre restriction, whereas others will only have a 50 metre restriction.

  •  Valuation shortfall

“One of the most common problems people face when applying for a home loan is a shortfall between the purchase price of the property and the amount the bank values that property for,” Darnbrough said.

  • Buying a property in a specific holding structure, for example Hybrid Discretionary Trust with corporate Trustee or SMSF
  • A property with a granny flat
  • A property with a specific use, such as a boarding house, commercial property, holiday house, student accommodation, display homes and NRAS
  • Serviced apartments

As Slack-Smith says, some lenders will not lend at all if these obstacles come in the way, whereas others will reduce the loan to value ratio (LVR) to below 80%.

If you know of a loan that has been declined for something not included on the list, please email ntrotman@propertyobserer.com.au

Nicola Trotman

With a penchant for the written word, Nicola has built a career doing just this – now Creative Director at thriving Melbourne-based PR agency, Greenpoint Media.

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