Financing a Very Small Property

Marie Owens, having purchased a 36 square metre apartment seven years ago, was recently ready to upgrade and visited her finance broker. To pay the deposit and related expenses on the new, larger property, she needed to release equity in her current apartment.

“She wanted to keep the one-bedroom unit as an investment property for tax purposes, to reduce the marginal tax she pays,” says her finance broker. “We needed to release some equity in the current unit, which will be used as a deposit to purchase her next home.”

When Marie initially bought the unit, she could borrow up to 80 per cent of the value of a 36 square metre property. But her lender changed its policy, and will now only finance up to 60 per cent of the value of any property that is under 40 square metres.

“Since the things have got a lot tighter,” explains her finance broker. After extensive research, he could find only one lender who would finance a property of that size at an 80 per cent loan to valuation ratio (LVR).

“I used an accredited mortgage finance broker group to ask my peers, and I found one lender who would work with 80 per cent LVR on the small property. I usually like to put forward three lenders and products, but there was only one this time,” says Marie’s finance broker. “The application’s been lodged and it’s all underway, so we’re going to release the equity from her unit now.”

While this equity will be used as a deposit for Marie’s next property purchase, she is not tied to her original lender to finance that purchase, so her finance broker is now taking her new mortgage to market to find her the best deal.

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