Everything You Need to Know About Home Loans & Property Types

Lenders don't treat all properties the same way. An apartment in central Frankston might require a larger deposit than a house in Frankston South, and that rural property with potential might not qualify for standard home loan products at all.

How Property Type Changes Your Loan to Value Ratio

Lenders adjust how much they'll lend based on what you're buying. Most owner-occupied home loans for standard houses allow you to borrow up to 95% of the property value. Apartments and units typically max out at 90% to 95%, depending on the lender and the building size. Townhouses generally sit somewhere in between, treated more like houses if they're on titled land, or closer to apartments if they're part of a larger complex.

Consider a buyer looking at a unit in one of the newer developments near Frankston Station. Even with a solid income and clean credit history, several lenders cap their lending at 90% for units in buildings with more than 50 apartments. That buyer needs to find an extra 5% deposit compared to what they'd need for a standalone house, which changes their timeline and savings target entirely.

Some property types face even tighter restrictions. Studios and one-bedroom apartments often require a 20% deposit minimum, regardless of your financial position. Properties on land larger than 2.5 hectares move into rural lending, which typically means higher interest rates and deposit requirements of 20% or more.

Variable Rate and Fixed Rate Options Across Property Categories

Your choice between variable interest rate and fixed interest rate home loan products doesn't change based on property type, but your access to certain loan features might. Most lenders offer the full range of home loan options for standard residential properties, including houses, townhouses, and apartments that meet their criteria.

An offset account linked to your variable home loan works the same way whether you're buying a house in Karingal or an apartment in Seaford. The loan amount and property type don't restrict this feature. A split loan, where you fix part of your borrowing and keep part variable, remains available across most property categories as well.

Properties that fall outside standard residential lending face more limitations. Rural properties, commercial premises with a residential component, or properties requiring specialist insurance may only have access to variable rate products. Some lenders also restrict interest only loans for units in buildings with known structural issues or high investor concentration.

When Frankston Apartments Need Additional Assessment

Apartments don't automatically mean harder approval, but certain buildings trigger extra checks. Lenders look at the number of units in a complex, the proportion owned by investors, and whether the building has any defects or cladding issues. Frankston has a mix of older low-rise blocks and newer mid-rise developments, and lenders treat them differently.

Buildings with more than 50% investor-owned units often face lending restrictions. Some lenders won't approve loans in these buildings at all, while others reduce the maximum loan to value ratio or add a margin to the interest rate. Buildings under construction or completed within the past 12 months sometimes require larger deposits, even if the property itself is fully finished.

Cladding has become a specific concern. If a building is listed on the Victorian Cladding Rectification Register, most lenders either decline the application or wait until rectification work is complete. This affects several buildings across the Mornington Peninsula, including some in Frankston. Checking the register before you make an offer saves you from wasted time and inspection costs.

How Townhouses and Villas Fit Into Lending Criteria

Townhouses on titled land with their own street frontage get treated almost identically to standalone houses. You'll typically access the same home loan rates comparison results, the same maximum lending amounts, and the same loan features. Where townhouses sit within a owners corporation or share common areas, lenders start applying some of the same caution they use for apartments.

The difference comes down to ownership structure. A townhouse on its own title, even in a small development, gives you more control over maintenance and doesn't require the same level of strata scrutiny. A villa unit in a larger complex with shared driveways, gardens, and facilities gets assessed more like an apartment, particularly if the complex has more than six dwellings.

In Frankston, many of the townhouse developments around Pines Forest and the Golf Course precinct fall into this middle category. They're not apartments, but they're not standalone houses either. Most lenders still approve them with competitive home loan interest rates, but a few reduce their maximum LVR by 5% compared to a standard house.

Rural and Lifestyle Properties Around Frankston's Edges

Properties on larger blocks of land move into a different lending category once they exceed certain thresholds. Land size over 2.5 hectares usually requires a rural loan product, which typically means a 20% deposit minimum and interest rates around 0.25% to 0.50% higher than standard owner occupied home loans. Some lenders set the threshold at 5 hectares, so it's worth checking with a few options.

Frankston itself is predominantly residential, but properties further south toward Langwarrin South or out toward Baxter can sit on larger parcels. Even within standard residential zones, a property on more than an acre sometimes gets flagged for additional assessment. Lenders want to confirm the land use, whether any part is used for farming or commercial purposes, and what kind of insurance is available.

Zoning matters as much as land size. A residential zoning on a two-hectare block usually gets treated more favourably than farming zoning on the same size parcel, even if you're only planning to live there. Some lenders simply don't offer home loan products for properties zoned for agriculture, regardless of how you intend to use them.

Portable Loan Features and Property Type Flexibility

A portable loan lets you take your current home loan with you when you sell and buy another property without refinancing. This feature can save you from paying fixed rate break costs if you're locked into a fixed interest rate, and it keeps any rate discount you negotiated with your lender.

Most lenders allow portability only if the new property meets their standard lending criteria. If your current loan is on a house and you're moving to an apartment, the lender reassesses the loan against the new property. You might keep the same loan account, but if the apartment requires a lower LVR or doesn't meet the lender's unit guidelines, you'll need to adjust your borrowing or look at refinancing to a different lender.

Portability works most smoothly when you're moving between similar property types. A house to another house, or an approved apartment to another approved apartment, usually processes without significant changes to your loan terms. Moving from a standard residential property to something that requires specialist lending almost always means a new application.

Building Equity and Borrowing Capacity With Different Property Types

The property type you choose affects how quickly you build equity and how much lenders will let you borrow against that equity later. Houses in established suburbs typically see steadier capital growth than apartments, which means your equity position improves more predictably over time. Apartments can grow in value as well, but markets with high apartment supply sometimes see slower growth, particularly in outer suburbs.

Frankston's housing market includes both established homes in suburbs like Frankston Heights and Belvedere Park, and newer unit developments closer to the CBD and Frankston Hospital. The houses generally give you more options to improve the property and add value through renovation, which can build equity faster than holding an apartment in a large complex where you have limited control over improvements.

Borrowing capacity also shifts depending on what you own. If you're looking to keep your current property and buy an investment loan, lenders assess the rental income differently depending on property type. Houses typically have longer lease terms and lower vacancy rates, so lenders might accept 80% of the rental income in their calculations. Apartments, particularly one-bedroom units, sometimes only get 70% to 75% of rental income counted, which reduces how much you can borrow for the next purchase.

Home Loan Application Requirements for Non-Standard Properties

Anything that falls outside the standard house or approved apartment category usually requires additional documentation in your home loan application. Rural properties need land valuations that account for the full parcel size, not just the house and immediate surrounds. Properties with mixed use, like a shop with a residence above, need commercial valuations and proof that the property meets council zoning for residential occupation.

Properties that need building work, whether that's completing an unfinished build or rectifying defects, typically require progress valuations and a clear construction timeline. Some lenders offer construction loans for these situations, but they're structured differently from standard home loan packages. You draw down funds in stages rather than receiving the full loan amount at settlement, and you usually pay interest only during the construction phase.

Lenders Mortgage Insurance becomes a factor when your deposit is below 20%, but LMI providers also have property type restrictions. Some won't insure apartments in specific postcodes or buildings over a certain height. Others exclude properties with bushfire risk ratings above a certain threshold. Even if a lender is willing to approve your application, the LMI provider might decline to insure it, which blocks the loan.

Comparing Home Loan Rates and Features for Your Property Type

Not every lender offers the same home loan rates across all property types. Some lenders advertise their lowest rates but restrict them to houses only. Others offer the same advertised rate but add a margin for apartments or townhouses once you submit your application. Comparing home loan rates means checking not just the headline figure, but the rate that applies to the specific property you're buying.

A variable home loan rate advertised at a certain percentage might increase by 0.10% to 0.30% for a unit, depending on the lender's risk assessment of that building. Fixed interest rate home loan products sometimes have the same adjustment. That difference compounds over the life of the loan, so it's worth knowing upfront rather than discovering it when you receive your formal approval.

Working with a broker who has access to home loan options from banks and lenders across Australia gives you a clearer picture of what's actually available for your property type. Some smaller lenders specialise in property categories that the major banks avoid, and they can sometimes offer lower rates because they understand the risk better. Others have stricter criteria but sharper pricing for properties that fit their guidelines perfectly. A home loan pre-approval based on your actual property type and situation gives you confidence when you're ready to make an offer.

Call one of our team or book an appointment at a time that works for you. We'll walk through your property options in Frankston, show you which lenders suit your situation, and make sure your loan structure matches what you're actually buying.

Frequently Asked Questions