Hidden bank rules blocking thousands of property buyers

Banks have generally been more open to lending since rates were cut but there are exceptions based on location and property type.

Aussie banks are quietly slamming the brakes on certain mortgages — and thousands of would-be buyers are being blindsided by hidden rules that could kill their property dreams.

Loan experts have revealed that lenders are getting pickier with where they put their money in some specific scenarios, despite interest rate cuts improving the average home buyers’ borrowing capacity.

Scrutiny on certain types of loans means lenders are rejecting applications based not only on income and credit history.

Factors banks are considering could be as diverse as the type of property, the industry a borrower works in, and even how many of their neighbours have already taken out loans in the same building.

High-rise apartments – many within Sydney’s inner suburbs and emerging precincts like Strathfield and Parramatta – are among the hardest hit, new data shows.

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Mortgage broker and Its Simple Finance founder Joseph Daoud said in some high-rise developments banks were capping the number of mortgages they will approve in a single building.

Even strong applicants are being knocked back if the lender decides it already has too much exposure in that block, Mr Daoud said.

“Banks will not usually publicly disclose this but some lenders will have a registry where you can check,” he said.

“This issue is only something to take in consideration for high rise buildings and apartments, where lenders will be exposed to more risk if they approve too many loans in the one building.”

Mortgage Choice broker James Algar said a silver lining for buyers was that some of the high-density locations where banks had been nervous over off the plan purchases a few years ago were now deemed safe.

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Apartment buyers within inner city areas are being required to have a minimum 80 per cent deposit.

“We saw during Covid that a huge number of banks wouldn’t lend on a lot of new builds in areas near Ryde and Macquarie Park or they would only lend up to 70 per cent,” Mr Algar said.

“A similar thing happened in Fortitude Valley in Brisbane. Thousands of units were all coming to completion at the same time and investors were fighting for tenants. It was a race to the bottom for rents.

“The irony is that values in those areas have grown substantially now and the banks will lend again.”

Those who work in unpredictable industries are also coming up against a wall with loan applications, Mr Daoud said.

“The banks would be cautious mainly of businesses in industries with high failure rates and high volatility. The main industry that comes to mind is hospitality due to high business failure rates and thin margins,” he said.

Bidders in some areas are having to find they need bigger deposits because of lending restrictions.

“These industries are seen as seasonal and vulnerable to economic downturns which makes banks more cautious. Your numbers may be great and banks will still loan you money but they are also aware of the potential for you not being able to service this loan if things go wrong.”

Mr Algar said the general mood among residential lenders was that they were “open for business” and willing to work with buyers to get deals over the line.

But he noted that there has been some pushback on mature age loans applicants – usually older couples seeking to refinance. “There’s concern about the exit strategy for these (applicants),” he said.

The properties themselves are also being judged more harshly. Banks are black-listing homes in some mining towns and single-industry regions, warning that if a downturn hits, values could collapse.

Properties in flood and bushfire-prone areas are also being flagged as risky while retirement villages and student housing is being scrutinised due to a smaller pool of future buyers and legal complexities.

No exact locations lists from banks have been made publicly available but an annual No Go Zones report released by investment advisory group Positive Property has consistently included some of the same areas.

Suburbs such as Port Hedland in WA, which services the iron rich Pilbara region, have consistently been among its list of risky buying locations.

Other suburbs that have been perennially on the No Go Zones list have included Queensland mining towns Dysart and Moranbah and WA towns Broome and Millars Well.

Sydney suburbs on the latest list of No Go Zones for property buyers seeking capital growth were units in the Parramatta CBD, Asquith, Zetland, Haymarket and Lidcombe.

Mr Daoud said the category of housing mattered in riskier markets.

“Banks will tend to use comparable properties in the area and if the trend shows a drop in price this may be a sign,” he said.

“Certain property types like small apartments, serviced apartments, luxury or unique homes trigger automatic caution to valuers and may be reason to deem the property as overvalued.

“Also many banks run property automated valuation models so anything outside particular parameters will typically be flagged.”

Some lenders have quietly black-listed certain builders and developers, particularly those with troubled track records or contracts, Mr Daoud added.

“Banks can potentially knock back loans due to builders. In this case usually the builder may be known to them or have controversy tied to their name. Potentially as well if banks get wind of non-standard contracts that could expose the borrower to more risk.”

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