The Home Loan That Fits Your Property Type

Lenders assess properties based on their type, construction, and location.

A three-bedroom house in Frankston and a two-bedroom apartment in the same suburb might both be valued at the suburb's current median, but the loan products available for each can differ significantly. The distinction comes down to how lenders calculate risk. Property type affects your loan-to-value ratio, the interest rate you qualify for, and whether certain loan features are available at all.

How Lenders Categorise Property Types

Lenders group properties into categories that carry different risk weightings. Established houses on standard residential land typically receive the most favourable treatment. Units and apartments, particularly in higher-density buildings, may attract higher interest rates or lower maximum LVRs. Townhouses usually sit somewhere between the two, depending on whether they sit on their own title or are part of a strata plan.

In areas like Mornington and Mt Eliza, where detached homes dominate the market, buyers often have access to a wider range of home loan options at lower rates. In Cranbourne, where medium-density developments are more common, the lender's assessment process may include additional scrutiny around the number of units in the complex and whether the building has any commercial use.

Units and Apartments in High-Density Buildings

A property in a building with more than six storeys or more than 50 units may be subject to stricter lending terms. Some lenders cap the LVR at 80% for these properties, meaning you would need a 20% deposit to avoid paying Lenders Mortgage Insurance. Others may still lend at 90% or 95% LVR but apply a higher interest rate or exclude certain loan features such as an offset account.

Consider a buyer purchasing a two-bedroom apartment in a newer development in Frankston. The building has 120 units across eight levels. Even with a 10% deposit and a strong income, the buyer may find that some lenders will not approve the loan without LMI, while others exclude the property entirely from their lending panel. The same buyer purchasing a three-bedroom townhouse on its own title in the same suburb would likely qualify for a broader range of products at a lower rate.

Rural and Semi-Rural Properties

Properties on larger blocks outside urban centres are assessed differently. If the land size exceeds two hectares, or if the property is used for agricultural purposes, most lenders will treat it as a rural loan rather than a standard owner occupied home loan. This distinction affects both the rate and the deposit required. Rural loans typically require a minimum 20% deposit, and some lenders will not offer them at all.

Location also plays a role. A five-acre block in a township with regular services and sealed road access is generally viewed more favourably than a similar-sized property in a remote area with limited infrastructure. Victoria has a mix of peri-urban and genuine rural areas, and the line between the two can shift depending on the lender's postcode database. If you are purchasing a property on a larger block, it is worth confirming how your lender defines rural before you apply for home loan pre-approval.

Strata Title and Company Title

Most units and townhouses in Victoria are sold under strata title, which gives you ownership of the unit and a share in the common property. Lenders are familiar with this structure, and it does not usually create additional barriers. Company title, which is less common but still exists in some older apartment buildings, is treated differently. Under company title, you own shares in a company that owns the building, rather than owning the property itself. Many lenders will not lend against company title at all, and those that do typically require a larger deposit and charge a higher rate.

If you are considering a property under company title, confirm the lending terms before making an offer. The property may appear more affordable than similar units nearby, but the restricted lending pool often means fewer loan options and higher overall costs.

Off-the-Plan Purchases

Buying a property before it is built introduces a different set of considerations. Lenders will typically approve the loan based on the contract price and a valuation of the proposed development, but the final loan may not settle until construction is complete. If the market shifts between contract signing and settlement, and the completed property is valued below the contract price, the lender may reduce the approved loan amount. This can leave you with a funding gap unless you have additional savings or can negotiate with the developer.

Off-the-plan purchases also require a sunset clause, which sets a date by which the contract can be terminated if the development is not completed. Lenders account for this uncertainty by reassessing the loan closer to settlement. If you are purchasing off-the-plan, ask your lender whether the home loan application includes a clause that allows for revaluation at completion.

Properties with Non-Standard Construction

Homes built with materials other than brick, weatherboard, or standard timber framing may be classified as non-standard construction. This includes properties with mud brick, rammed earth, or lightweight cladding that does not meet current building standards. Lenders often require a specialist valuation for these properties, and some will not lend against them unless they meet specific construction criteria.

In Victoria, weatherboard homes are common in older suburbs, and most lenders accept them without issue. However, properties with asbestos cladding or structural concerns identified in a building inspection may be excluded from some loan products. If the valuer flags a defect or non-compliance, the lender may require the issue to be rectified before settlement or may decline the application altogether.

Investment Properties and LVR Limits

If you are purchasing an investment property, the maximum LVR is often lower than it would be for an owner-occupied purchase. Many lenders cap investment loans at 90% LVR, and some reduce this further for units in high-density buildings or properties in regional areas. The same property purchased as a primary residence might qualify for 95% LVR, while an investor purchasing the same unit may need a 15% or 20% deposit.

Interest rates on investment loans are also typically higher. The difference between an owner-occupied variable rate and an investment variable rate can be 0.20% to 0.40%, depending on the lender and the property type. Over the life of the loan, this adds up. If you are weighing up whether to purchase as an owner-occupier or an investor, factor in both the deposit requirement and the ongoing rate difference.

Choosing the Right Loan Structure for Your Property

Once you know how your property type will be assessed, you can match it to a loan structure that aligns with your circumstances. A detached house with standard construction and a 20% deposit gives you access to the widest range of products, including variable, fixed, and split rate options. A unit in a high-density building with a 10% deposit may limit you to a smaller panel of lenders, but a mortgage broker can help you identify which lenders treat your property type more favourably.

If your property sits outside the standard categories, such as a rural block or a non-standard build, you may need a specialist lender. These lenders often charge higher rates, but they also have more flexibility in how they assess risk. Knowing this upfront means you can structure your deposit and application to match what the lender requires, rather than applying with a mainstream lender and facing a decline.

Call one of our team or book an appointment at a time that works for you. We can walk through how your property type affects your loan options and help you put together an application that reflects how lenders assess the home you are purchasing.

Frequently Asked Questions