Loan to Value Ratio Differences Between Apartments and Houses
Lenders typically apply stricter loan to value ratio limits to apartments than to houses. Most lenders cap apartment loans at 90% LVR compared to 95% LVR for houses, which means you may need a larger deposit when purchasing an apartment. The reason is risk weighting. Under APRA's Prudential Standard APS 112, lenders assign higher capital requirements to higher-density properties because historical data shows apartments can be more volatile during market downturns.
Consider a buyer purchasing in Frankston with a 10% deposit. If they're looking at a house, they might access financing at 90% LVR with LMI and potentially qualify for first home buyer schemes that allow a 5% deposit with a government guarantee. If they're looking at an apartment in the same suburb, some lenders may decline the application or require a 15% deposit, even with the same income and credit profile. That difference can mean finding an additional $30,000 to $40,000 depending on the purchase price.
Some lenders treat apartments in buildings with fewer than four storeys more favourably than high-rise stock. Others apply postcode-based overlays that tighten lending in areas with high apartment supply or weak rental demand. If you're comparing home loan options across property types, confirm the maximum LVR with your broker before you commit to a purchase.
How Unit Size and Building Composition Affect Approval
Apartments below 50 square metres attract additional scrutiny. Many lenders either decline to lend on properties under this threshold or apply reduced LVRs, sometimes as low as 70%. The rationale is resale risk. Smaller units appeal to a narrower buyer pool, and some investors avoid them due to concerns about capital growth and tenant suitability.
Building composition also matters. Lenders review the proportion of owner-occupiers versus investors in the building, the number of units on a single title, and whether the building is still under construction or recently completed. If more than 50% of units in a building are investor-owned, some lenders classify the security as higher risk. If the building has shared facilities such as pools, gyms, or lifts, the lender may request a building report or strata inspection to assess maintenance risk and sinking fund adequacy.
In our experience, buyers in growth areas like Cranbourne or Clyde North often find that newer apartment developments trigger lender caution, even when the property is priced within the suburb median. A unit in a building with 200 apartments and 15 floors may be treated differently from a two-storey walk-up with eight units, even if both are in the same postcode and priced similarly. If you're buying in a high-density precinct, ask your mortgage broker to pre-qualify your preferred property type with multiple lenders before you start attending inspections.
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Interest Rate Pricing Across Property Types
Some lenders apply interest rate loadings to apartments, particularly in buildings over a certain height or in postcodes with oversupply. The loading is typically between 0.10% and 0.30% above the standard variable rate for houses. Not all lenders apply this pricing, but it's common enough that it should form part of your home loan rates comparison.
Consider a borrower purchasing a house in Mornington at a variable rate of 6.20% and a similar borrower purchasing an apartment in the same suburb. If the apartment attracts a 0.20% loading, the rate becomes 6.40%. Over a 30-year loan term, that difference compounds. A $500,000 loan at 6.20% requires monthly repayments of around $3,060. At 6.40%, repayments rise to approximately $3,130. That's an additional $840 per year, or $25,200 over the life of the loan, purely due to property type.
Rate loadings are more common on investment loans than owner-occupied loans, but they can apply to both. If you're weighing up whether to buy an apartment or a house and both are within your budget, factor in the potential rate difference when you calculate your borrowing capacity. A fixed rate structure can lock in your repayments and remove uncertainty if you're buying in a property type or location where lender pricing varies.
Strata Levies and Borrowing Capacity
Strata levies reduce your borrowing capacity because lenders treat them as an ongoing liability, similar to a car loan repayment or childcare cost. The higher the levy, the lower the loan amount you can service. For a buyer comparing a $650,000 house with no strata fees to a $650,000 apartment with $2,500 per quarter in levies, the apartment buyer's maximum loan amount may be $30,000 to $50,000 lower, depending on income and other commitments.
In areas like Mount Eliza or Mornington, where buyers are often transitioning from larger homes to low-maintenance apartments, the strata levy can be a surprise constraint. A buyer might assume they can borrow the same amount because the property price is the same, but the quarterly levy impacts the serviceability calculation. Lenders assess your capacity to service the loan at a rate that is at least 3.0 percentage points above the product rate, and they include strata levies in the expense side of that calculation.
If you're refinancing from a house into an apartment, your refinancing capacity may be lower than your original loan amount, even if your income has increased. Work through the numbers with your broker before you list your current property so you understand the borrowing range available to you once strata costs are factored in.
Valuation Risk in High-Density Precincts
Valuation shortfall is more common with apartments than houses. When a valuer assesses an apartment, they rely heavily on recent comparable sales within the same building or nearby developments. If there are limited sales, or if recent sales were distressed or discounted, the valuation may come in below the purchase price.
In a scenario like this, a buyer contracts to purchase an off-the-plan apartment in Cranbourne for $520,000. At settlement, 18 months later, the valuer assesses the property at $480,000 because several other buyers in the building sold before settlement at lower prices, and those sales are now the most recent comparables. The buyer is left with a $40,000 shortfall. If they were borrowing at 90% LVR, they now need to provide an additional $40,000 in cash to settle, or renegotiate the contract if a sunset clause or valuation condition applies.
Off-the-plan purchases carry additional risk because the valuation occurs at settlement, not at contract. Market conditions, building completion delays, and oversupply can all affect the final valuation. If you're buying off-the-plan, make sure your contract includes a valuation clause or sunset date, and keep a buffer in your savings to manage a potential shortfall. This applies across all property types, but the frequency of shortfalls is higher in apartment markets with high supply.
Loan Features That Suit Apartment Buyers
Apartment buyers often benefit from offset accounts and redraw facilities because many are purchasing for the first time or transitioning to lower-maintenance living with a plan to travel or invest elsewhere. An offset account linked to your loan reduces the interest you pay without locking your cash into the mortgage. If you're an owner-occupier with variable income or irregular bonuses, an offset lets you park surplus funds and reduce interest while keeping liquidity.
A split loan structure can also suit apartment buyers, particularly if you're purchasing in a market where interest rates are expected to shift. Splitting your loan into a fixed portion and a variable portion gives you repayment certainty on part of the loan while retaining flexibility on the remainder. If you plan to sell the apartment within five years and upgrade to a house, the variable portion avoids break costs when you exit early.
Some lenders offer portable loans, which allow you to transfer the loan to a new property without refinancing. This can be valuable if you're buying an apartment as a stepping stone and expect to move into a house within a few years. Not all loan products include portability, so confirm the feature with your broker when you compare loan structures.
Owner-Occupied vs Investment Loan Treatment for Apartments
Lenders apply different risk settings to owner-occupied and investment loans, and those differences are often more pronounced for apartments. An investor purchasing a one-bedroom apartment in a high-rise building may face a maximum LVR of 70% to 80%, while an owner-occupier purchasing the same unit may access 90% LVR. The lender's view is that an owner-occupier has a personal stake in maintaining the property and is less likely to default during vacancy periods.
Interest rate pricing also diverges. Investment loans on apartments can attract both the standard investment loan margin and an additional loading for property type, which can push the rate 0.40% to 0.60% above an owner-occupied house loan. For a $600,000 loan, that difference equates to an additional $3,000 to $4,000 per year in interest.
If you're purchasing an apartment as an investment, your ability to negatively gear the loss against other income depends on the purchase date. Properties purchased after May 2026 are subject to new negative gearing rules from the 2027-28 income year, meaning losses can only be offset against other residential property income. Established apartments purchased as investments after that date will not provide the same tax benefit as properties purchased earlier. Speak to your accountant before you commit to a purchase if tax treatment is part of your investment strategy.
Call one of our team or book an appointment at a time that works for you to discuss your property goals and loan structure. We compare home loan products from lenders across Australia and can help you understand how your chosen property type affects your borrowing options and repayment flexibility.
Frequently Asked Questions
Do apartments require a larger deposit than houses?
Yes, most lenders cap apartment loans at 90% LVR compared to 95% LVR for houses, which means you typically need a larger deposit when purchasing an apartment. Some lenders apply even stricter limits to high-rise buildings or apartments below 50 square metres.
Can strata levies reduce how much I can borrow?
Strata levies are treated as an ongoing liability and reduce your borrowing capacity because lenders include them in their serviceability assessment. Higher levies can reduce your maximum loan amount by tens of thousands of dollars compared to purchasing a house with no strata fees.
Do lenders charge higher interest rates on apartment loans?
Some lenders apply interest rate loadings to apartments, typically between 0.10% and 0.30% above standard rates for houses. The loading is more common for high-rise buildings, investment loans, and properties in areas with oversupply.
What happens if my apartment valuation comes in lower than the purchase price?
If the valuation is lower than the purchase price, you will need to provide additional cash to cover the shortfall or renegotiate the contract if a valuation clause applies. Valuation shortfalls are more common with apartments, particularly in high-density precincts or off-the-plan purchases.
Are owner-occupier apartment loans treated differently from investment loans?
Yes, lenders typically offer higher LVRs and lower interest rates to owner-occupiers purchasing apartments compared to investors. Investment loans on apartments often attract additional rate loadings and stricter lending limits, particularly for properties in high-rise buildings.
