Common Mistakes When Financing Apartments vs Houses

Apartments and Houses Attract Different Lender Policies

Lenders treat apartments and houses as different risk categories, which means the loan products, interest rates, and deposit requirements can vary depending on which property type you're buying. An apartment in a high-rise development might require a larger deposit than a house on the same street, and some lenders won't touch certain types of apartments at all. Knowing the difference before you apply will help you avoid rejections and give you access to better loan terms.

Consider a buyer purchasing a two-bedroom apartment in Werribee. The property is listed at the current median for units in the suburb, and the buyer has a 10% deposit. They apply with a lender that caps apartment loans at 80% LVR for buildings over 10 storeys. The building is 12 storeys, so the lender declines. The buyer then applies with a different lender who approves high-rise apartments at 90% LVR but applies a 0.15% interest rate loading. The rate difference over a 30-year loan adds thousands in extra interest, purely because the property type triggered a risk adjustment.

If you're buying an apartment, check the building height, total number of units, and whether there's a commercial component on the ground floor. Lenders often apply stricter policies to buildings over a certain height or with mixed-use zoning. A mortgage broker in Werribee or across Victoria can run the property details past multiple lenders before you commit to an application.

Apartments Can Require Higher Deposits

Some lenders require a minimum 20% deposit for apartments, even if they'll lend at 90% or 95% LVR for a house. This is due to the way apartments are risk-weighted under lender policies, particularly for buildings with certain features like short-term rental use, high investor concentrations, or incomplete defect rectification. If you're planning to use a low-deposit scheme like the Australian Government 5% Deposit Scheme, not all property types will qualify, and the lender's internal policy may override the scheme's headline settings.

In our experience, buyers often assume that because they qualify for a low-deposit home loan, they can apply it to any property. That's not always the case. A lender might approve you at 90% LVR for a freestanding house but cap your borrowing at 80% for an apartment in the same suburb. The property determines the LVR limit as much as your income and deposit do.

Houses Offer More Product Flexibility

Most lenders offer their full range of home loan products for houses, including variable rate, fixed rate, split loan, and offset account options. Apartments, particularly those in buildings with specific characteristics, may have restricted access to certain loan features. For example, some lenders won't offer a discount variable rate for apartments in buildings with more than 50% investor-owned units or where a single entity owns more than 20% of the lots.

This restriction doesn't always appear until the lender receives a copy of the strata report or building insurance schedule. You might receive conditional approval, then have the rate or loan structure change once the property documents are reviewed. If you're comparing home loan options, ask the lender or broker to confirm product availability based on the actual property, not just the purchase price and your financial position.

Strata Levies Affect Borrowing Capacity Differently

When you apply for a home loan on an apartment, the lender includes your quarterly or annual strata levies in the servicing calculation. This reduces your borrowing capacity compared to a house, where ongoing costs like rates and insurance are lower or more predictable. If the strata levy is high due to building works, sinking fund contributions, or shared facilities, it can reduce the loan amount you're approved for by tens of thousands of dollars.

As an example, a buyer applying for a loan on a house in Altona with council rates of around $2,000 per year will have more borrowing capacity than a buyer applying for an apartment in the same area with $4,500 in annual strata levies. The difference in recurrent expenses directly affects how much the lender will lend, even if both buyers have identical incomes. If you're unsure how levies will impact your borrowing capacity, ask your broker to run the numbers with and without strata costs included.

Lenders Mortgage Insurance Costs More for Some Apartments

If you're borrowing above 80% LVR, you'll pay Lenders Mortgage Insurance regardless of whether you're buying an apartment or a house. But the premium can be higher for apartments, particularly those in buildings the LMI provider classifies as non-standard. This includes properties in buildings with unresolved defects, low owner-occupier ratios, or postcode-specific restrictions.

LMI providers use their own risk models, which don't always align with lender policy. A lender might approve your apartment loan, but the LMI provider might load the premium or decline to insure it altogether. If that happens, the lender will either reduce the LVR or withdraw the offer. This is one reason why first home buyers purchasing apartments should get their property assessed early in the process, not just before settlement.

Valuations Are Harder to Predict for Apartments

Lenders rely on independent valuations to confirm the property's market value, and apartments are more likely to come in under the purchase price than houses. This is due to fewer comparable sales, higher price volatility in unit markets, and valuer caution around buildings with known issues or high supply. If the valuation falls short, your deposit percentage effectively increases, which can push you over the lender's maximum LVR or trigger an LMI premium you weren't expecting.

We regularly see this in areas with new apartment developments, where buyers agree to a price based on recent sales in the same building, but the valuer applies a discount due to market softening or oversupply. If you're buying off-the-plan or in a building that's less than two years old, expect the valuer to take a conservative view. You may need a larger deposit or a different lender to make the deal work.

Interest Rates Can Vary by Property Type

Some lenders apply a rate loading to apartments, particularly those in high-rise or mixed-use buildings. The loading typically ranges from 0.10% to 0.25%, though some lenders don't load at all. The difference might seem small, but over the life of a loan it compounds. A 0.15% loading on a loan amount of $500,000 over 30 years adds more than $15,000 in extra interest.

If you're comparing home loan rates, make sure the comparison includes the property type. A lender advertising a low variable interest rate might apply that rate to houses but load it for apartments. Your broker should be able to show you which lenders treat apartments and houses the same way and which ones don't.

Owner-Occupied vs Investment Loans Work Differently for Units

If you're buying an apartment as an investment, expect tighter lending criteria than you would for an investment loan on a house. Some lenders cap investment loans on apartments at 80% LVR, or exclude certain postcodes entirely from their investment lending panel. This is particularly common in areas with high concentrations of new apartment stock or where vacancy rates are elevated.

If you're considering an investment loan on an apartment, check whether the lender's postcode restrictions apply to your property. Some lenders maintain an internal blacklist of high-risk suburbs or buildings, and your application will be declined regardless of your financial position. A broker with access to a wide lender panel can help you avoid that issue by steering you toward lenders who are actively lending in that area.

Settlement Costs and Ongoing Fees Add Up

Apartments come with ongoing costs that houses don't, and those costs should factor into your loan structure and offset account strategy. Strata levies, building insurance, and special levies for major works all reduce the cash you have available to offset against your loan balance. If you're using a home loan with an offset account, the ongoing expenses for an apartment can make it harder to build a meaningful balance, which means you'll pay more interest over time.

If you're deciding between an apartment and a house, model the total cost of ownership over five years, not just the purchase price and repayments. Include strata levies, rates, insurance, and likely special levies. The apartment might have a lower purchase price, but the total cost of holding it could be higher than a house with a slightly larger loan.

Buying an apartment or a house isn't just about what you can afford today. It's about which property type gives you access to the loan structure you need, at a rate and LVR that makes sense for your goals. If you're not sure which property type suits your situation, or you've had an apartment application knocked back, call one of our team or book an appointment at a time that works for you.

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