In short: Many lenders apply a minimum internal floor area of around 50 square metres, measured excluding balconies and car spaces, before they will lend at standard terms. Below that, some lenders decline outright and others cap the loan-to-value ratio, which can mean a 30% or 40% deposit. Studios, student accommodation, serviced apartments and company title are harder again. Policy varies by lender and changes without notice.
Buyers are regularly surprised by this, because the property is legal, insurable, tenantable and openly listed. None of that is the issue. The issue is how quickly a lender could sell it if it had to.
The floor area rule
The commonly applied threshold is about 50 square metres of internal living area, and the measurement is where most of the confusion lives.
| Included in the measurement | Excluded from the measurement |
|---|---|
| Bedrooms, living areas, kitchen | Balcony or terrace |
| Bathrooms, laundry, internal hallways | Car space or garage |
| Built-in robes (usually) | Storage cage |
| Common property |
A listing advertising "62 sqm" may well be 48 square metres internal plus a 10 square metre balcony and a 4 square metre storage cage. Get the strata plan or the architectural plan and measure the internal area yourself before you make an offer. The lender will.
Some lenders use a lower threshold, around 40 square metres, for a smaller set of postcodes; others sit above 50; a handful will consider anything with a case-by-case credit assessment. There is no industry-wide rule, and any lender can change its policy overnight.
What happens below the threshold
Rather than a flat "no", the more common outcome is a restricted LVR. A property that would be lent to at 90% if it were 55 square metres might be capped at 70% or 60% at 45 square metres. That is a deposit problem, not a rate problem.
Worked example: a 48 square metre apartment at $420,000
You want a one-bedroom apartment in an inner Melbourne building. Internal area is 48 square metres. Price $420,000.
| Scenario | Maximum LVR | Loan | Deposit needed | Monthly repayment at 6.00% p.a., 30 years |
|---|---|---|---|---|
| A lender that accepts it at standard terms | 80% | $336,000 | $84,000 | about $2,015 |
| A lender that restricts small apartments | 70% | $294,000 | $126,000 | about $1,763 |
| A lender that restricts further | 60% | $252,000 | $168,000 | about $1,511 |
| A lender that declines the security | n/a | nil | n/a | n/a |
The gap between the first and second rows is $126,000 − $84,000 = $42,000 of additional cash, for the same apartment at the same price. Add Victorian stamp duty at the general rate: $2,870 plus 6% of the amount over $130,000, so $2,870 + $17,400 = $20,270, plus about $2,500 for conveyancing and inspections.
- Cash required with the accepting lender: $84,000 + $20,270 + $2,500 = about $106,770
- Cash required with the restricting lender: $126,000 + $20,270 + $2,500 = about $148,770
Same apartment, $42,000 difference, decided entirely by which lender the file goes to. That is the practical argument for checking policy before you bid rather than after. Model the deposit at each LVR in the LVR calculator.
Building and postcode exposure caps
Separately from size, lenders limit how much of any single building they will finance. A common approach is a cap on the proportion of units in one development, and a further cap on total exposure in a given postcode.
- If a lender has already written loans on a large share of a 300-apartment tower, the next application on that tower may be declined regardless of the borrower's strength.
- Some lenders maintain a list of high-density postcodes where the maximum LVR is reduced for all apartments, not just small ones.
- Buildings with known defect claims, cladding rectification or litigation involving the owners corporation attract additional caution.
This is why two buyers with identical incomes buying identical apartments in the same building can get different answers from the same lender three months apart. Nothing changed about them. The lender's exposure changed. The same logic drives suburb-level policy, covered in postcode and location lender policy.
The property types that are hardest to finance
Studios
A studio without a separate bedroom is usually under the floor area threshold by definition. Expect a restricted LVR, a shorter list of lenders, and a valuation that may sit under the contract price. Read what to do about a low valuation.
Student accommodation
Purpose-built student apartments are typically small, restricted by the planning permit to student occupants, and managed under a long operator agreement. The resale market is other investors only, which makes the security thin. Many lenders decline outright; those that do lend often want 40% to 50% deposit and may not count the rent.
Serviced apartments
An apartment leased back to a hotel or serviced-apartment operator is treated as a commercial-style investment. The value depends on the operating agreement, the return is contractual rather than market rent, and if the operator fails, the property may not be lawfully usable as an ordinary home. Deposits of 30% to 50% are common, and some files go to commercial property lending rather than a residential loan.
Company title
In company title, you do not own a lot on a strata plan. You own shares in a company that owns the building, and those shares give you a right to occupy a flat. There is no title to mortgage in the ordinary way, so the lender's security is a share charge plus the company's consent. Most lenders decline; the few that lend typically want a large deposit and the company's written approval of both the sale and the mortgage. Compare this with ordinary strata in owners corporation and strata in Victoria.
Other flags
- Apartments with a permit restricting occupancy or short-stay use
- Buildings with a high proportion of short-stay letting
- Off-the-plan stock in a building where resales are already below original prices
How to check policy before you commit
- Get the internal area in writing. The strata plan, the architectural plan or the section 32 will have it. Do not rely on the advertised total.
- Get the building's unit count and address so exposure can be checked.
- Ask about the owners corporation. Levy amounts, the sinking fund balance, any special levy, any current litigation or defect rectification.
- Ask your broker to run the security past two or three lenders before you make an offer. This takes an afternoon and costs nothing.
- Keep a finance clause on a private sale, and be realistic about the timeframe. At auction there is no such protection.
If the plan is to buy an apartment as an investment while renting where you want to live, the security restrictions matter even more, because the LVR cap drives the whole strategy. Read rentvesting and the investment property guide.
Why the rule exists
It is worth understanding rather than resenting. A lender's downside is a forced sale in a weak market. Small apartments concentrate every unfavourable characteristic: the buyer pool is narrow (mostly investors and single occupants), supply of near-identical stock is high, owners corporation costs are fixed regardless of size, and rental demand is more cyclical. In a downturn, a 45 square metre apartment in a 300-unit tower takes longer to sell and clears at a wider discount than a house on land.
That does not make it a bad purchase for you. Yield is often strong and the entry price is low. It does mean expecting a larger deposit and fewer lenders competing for the loan, which affects pricing. See understanding LVR and LMI.
Frequently asked questions
What is the minimum apartment size for a home loan in Australia?
There is no legal minimum, but many lenders apply an internal floor area threshold of around 50 square metres, excluding balconies and car spaces, before lending at standard terms. Some accept smaller apartments with a reduced maximum LVR, meaning a much larger deposit. Policy differs between lenders and changes without notice, so it must be checked case by case.
Does the balcony count towards the floor area?
Generally no. Most lenders and valuers measure internal living area only, excluding balconies, terraces, car spaces, storage cages and common property. This is why an apartment advertised at 62 square metres can be assessed at 48. Ask for the strata plan and measure the enclosed living area before you make an offer.
Why was my apartment loan declined when my income is strong?
Because the decision was about the security, not you. Lenders cap their exposure to individual buildings and to high-density postcodes, and they restrict small apartments, student accommodation and serviced apartments. A strong borrower with a weak security can be declined; a different lender with different exposure may approve the identical application.
Can I get a loan on a serviced apartment or student apartment?
Sometimes, with a large deposit. Both are treated as specialised securities with a narrow resale market. Expect 30% to 50% deposit, a shorter list of lenders, possible exclusion of the rental income from serviceability, and a conservative valuation. Get the operator or management agreement reviewed before you sign anything.
How do I find out a lender's apartment policy before I bid?
Ask a broker to check the specific address and internal area against several lenders' current security policies. Policies are not published, they change, and they differ on floor area, postcode and building exposure. Doing this before you make an offer is far cheaper than finding out after your finance date has passed.
Talk to GNT Finance
If you are looking at an apartment under 50 square metres, in a large tower, or in a building with an unusual title, get the security checked before you bid rather than after. We will confirm the internal area, check exposure and policy across our panel, and tell you what deposit each option really needs. There is no cost to you for our home-loan service in most cases.
Book a free consultation or call 0426 403 703.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.