Properties that the Bank thinks are risky

The Bank doesn't see property the way we do 🤔⁠

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There are several property types that are considered ‘risky’ by banks, which could result in your home loan application being declined or at best, leave you fewer options with unavoidable provisions, such as a higher interest rate and restrict loan to value ratio. All of which points to either a bigger deposit or forking out more money 😬⁠

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In general, the banks restrict lending to properties that appeal to a limited resale or tenant market. They are therefore considered risky and should be purchased with caution.⁠

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1. Serviced apartments 🏢 ⁠

With these properties, an operator is engaged to look after the building and manage the property at expensive ongoing management costs. So you are reliant on them and cannot change companies as the management rights form part of the ownership. They carry a lot more risk than buying an ordinary apartment as you’re relying on the operator to get it right and on the tourism and business markets to remain strong to maintain occupancy. These properties also have a limited resale market (since only investors buy them you’re cutting out up to 70% of potential purchasers) not to mention the limited letting market.⁠

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2. Defense Housing accommodation (DHA) ⛺️ ⁠

While these properties seem attractive and come with the certainty of long leases and generally no ongoing maintenance, they have a limited resale market and substantial management charges. Generally, they need to be up for sale to defence housing first and are only located in areas requiring housing for defence personnel, which may not be the most traditional therefore attractive for most.⁠

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3. Student Accommodation 🤓⁠

Student accommodation is often considered a risky investment by lenders as they are often very small with shared facilities and there would only be a small pool of potential tenants. These apartments are usually located close to universities and surrounded by other student accommodation, so investors will most likely only have students interested and there may also be constant vacancy periods during December/January when universities have holidays.⁠

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To be continued...