Did you know that the location and postcode of the property you intend to purchase matters greatly too?
The property needs to act as a suitable security for the loan incase of default, and location is a big factor that determines value. It all depends on the perceived risk of each location in the eyes of the lender. Postcodes may be flagged as a higher risk for a number of reasons. Some examples include locations in/with:
- An oversupply of units in the area. Typically in metro areas with high-rise apartments where units may be more difficult to sell.
- Rural areas. These areas tend to have small populations and less demand. A lack of similar sales in the area could also make it difficult to assess the actual property value.
- No direct vehicle access. Property on islands could be more difficult to find finance for.
How does it affect your loan?
Maximum loan-to-value ratio (LVR).
Lenders may be able to provide borrowers looking at minimal risk locations a 90% or 95% LVR loan. On the flipside, high risk locations may limit borrowers to a 60% LVR.
Maximum loan amount.
Large loans may reach an upper limit that the lender is willing to lend.
Rejection.
Your application may be rejected in extreme cases where the location is deemed too tricky, depending on the risk tolerance of the lender.
At the end of the day, borrowers need to remember that these restrictions could vary between lenders. If one lender’s proposal did not meet expectations possibly because of property location, then it could be an option to shop around for other options.
Any advice provided is general in nature and should be considered in line with your financial situation, needs and objectives.
