Thinking of Buying an Apartment as Houses Cool? The Lending Traps to Know First

The question I'm getting more than any other right now

For most of the last few years the conversation started with a house. Lately it starts with an apartment. Buyers who were chasing a freestanding home a year ago are looking at the numbers, looking at the market, and asking me whether a unit makes more sense. It's a fair question, and the data is part of the reason they're asking.

Cotality has Sydney house values down about 1.7% in July to a median near $1.53 million, and roughly 2.5% lower than a year ago. Units fell far more gently, about 0.8% for the month to a median around $890,000, and they're actually 1.1% higher than a year ago — the only part of the Sydney market still in positive territory over twelve months. When houses are sliding and units are holding, a lot of people quite reasonably start doing their sums on an apartment.

Here's the part nobody warns them about: the bank treats apartments very differently to houses, and the property that looks like a bargain can be the one the lender won't touch. I've watched more than one clean, well-priced purchase fall over at the finance stage — not because the buyer couldn't afford it, but because of the apartment itself. So before you fall in love with a unit, here's what actually matters to a lender.

Size is the first thing they check

The single most common apartment trap is floor size. Most lenders want the internal living area to be at least 50 square metres, and here's the catch that gets people: they mean the enclosed living space only. Balconies, courtyards, car spaces and storage cages don't count.

So a listing that proudly says "50sqm" can quietly become 42sqm of actual living area once the balcony and car space come out — and now you're in trouble. Under roughly 40 square metres, most lenders cap you at 80% of the value, which means a 20% deposit minimum and no lenders mortgage insurance option to stretch it. Some lenders won't lend on small units at all.

The frustrating thing is you often can't tell from the ad. The fix is simple but you have to do it early: get the internal area confirmed before you're emotionally committed, not after your offer is accepted. If it's a studio or a compact one-bedder, assume size is a question and plan your deposit around it.

Some postcodes carry their own rules

Lenders keep private lists of what they call high-density or "concentration risk" postcodes — pockets with a lot of apartment stock and a lot of it built recently. Parts of Parramatta, Zetland, Wolli Creek, Rhodes and Sydney Olympic Park have all appeared on lists like these at various times.

In those areas a lender might quietly drop your maximum from 90% down to 70 or 80%, meaning a much bigger deposit for the exact same apartment. What makes this maddening is how inconsistent it is. One lender might happily lend you 90% in a building, while the lender next door caps everyone in that postcode at 80%. There's no public register, and the policy changes without notice.

This is genuinely one of the areas where knowing which lender to approach first saves you the most pain. The right lender for a house in the Inner West is often the wrong lender for a high-rise in Wolli Creek, and finding that out after a knock-back costs you time you may not have.

The title type can stop a loan cold

Most Sydney apartments are strata title, which is what lenders expect and are comfortable with. But a handful of older buildings are company title or stratum title, and those change everything.

With company title you don't technically own the unit — you own shares in a company that owns the building, and those shares give you the right to live in your apartment. Lenders treat that as higher risk. Many cap borrowing at 80%, some add conditions, and a few won't lend on it at all. The apartment can look identical to the strata unit next door and be a completely different financing proposition.

The same caution applies to anything with a business attached: serviced apartments, student accommodation, and units tied to a management or letting agreement. They often need a bigger deposit, attract a smaller pool of lenders, and can be declined outright. None of this means these properties are bad — it means the finance needs to be sorted before you sign, not assumed.

The building's paperwork matters as much as your payslip

With a house, the bank is mostly assessing you and the land. With an apartment, they're also assessing the building — and that's where the strata report comes in.

Most lenders will want to see it, and they read it closely: the balance of the sinking fund (the building's savings for future repairs), whether any special levies are planned, the history of the body corporate, and crucially any sign of building defects or unresolved disputes. A building with cracked reserves, a looming special levy or a defect history can mean a higher rate, a bigger deposit, or a flat no.

After the well-publicised defect sagas of recent years, lenders and valuers have become noticeably more careful about newer high-rise stock. A cheap strata levy isn't always the good news it looks like — sometimes it means the building simply hasn't been putting money aside, and that's exactly what a valuer flags. If you're buying a unit, budget for a proper strata report and actually read it. It's a few hundred dollars that can save you from a very expensive mistake.

What this looks like in real numbers

Say you've found a $850,000 apartment and you've saved a $130,000 deposit — around 15%. On a standard strata unit of a good size in an ordinary postcode, that's a straightforward loan with a bit of LMI, and you're fine.

Now change one thing. The same apartment turns out to be 43sqm of internal area, or it sits in a flagged high-density postcode, or it's company title. Suddenly the lender wants 80% maximum — so on an $850,000 property they'll lend $680,000, and you need a $170,000 deposit. That's $40,000 more than you've saved, on a purchase you thought was comfortably within reach. Nothing about your income changed. The property changed the deal.

This is the whole point. With apartments, affordability isn't just about you — it's about whether the specific unit fits the lender's rules. Sort that out before you make an offer and the rest is easy. Find out afterwards and you're scrambling for cash or walking away from your deposit.

Where this sits in the bigger picture

The Reserve Bank left the cash rate on hold at 4.35% on 11 August, a unanimous decision and the second hold in a row after three rises earlier this year in February, March and May. Inflation is easing but still above the RBA's 2–3% target, and the Board has been clear it would lift rates again if needed. So borrowing costs are higher than they were, and the buffer lenders test you against is higher too.

That's part of why units are getting a fresh look — they're the more affordable door into the market while houses cool. It can be a genuinely smart move. Just go in knowing that the apartment itself has to pass the bank's test as much as you do, and that the difference between an easy approval and a dead deal often comes down to which lender you take it to and in what order.

If you're weighing up an apartment and want to know how the banks are likely to see it before you make an offer, I'm happy to have a free, no-obligation chat and go through it with you. With access to more than 70 lenders and eight years in lending, including my time at CBA, I can usually tell you quickly whether a particular unit is straightforward or one to be careful with — and which lenders will actually back it.

This is general information only and not personal financial advice — everyone's situation is different, so please get in touch and we'll look at yours together. Property values, interest rates and lender policy all change, so treat the figures here as a snapshot in time. For strata, contract and title questions please speak to your solicitor or conveyancer, and for anything tax-related your accountant or a licensed adviser.

Ready to take the next step?

Book a free 30-minute consultation with William. No fees, no obligation — just expert advice tailored to your situation.

Bridge Finance

Serving Sydney: Burwood · Strathfield · Parramatta · Chatswood · Epping · Macquarie Park · Meadowbank · North Ryde · Rhodes · Ryde

Free property price guides: OfferGuide

© 2026 Bridge.Finance Pty Ltd ATF Zhu Family Trust. MFAA Member. AFCA Member.

Get in touch

Ready to take the next step?

Whether you're just starting your property search or ready to apply, we'd love to help. Reach out for a free, no-obligation chat and find out what's possible for your situation.

Follow along on TikTok (@williamzhufinance) for property tips, market insights, and honest mortgage advice.

Address

217 Burwood Road, Burwood NSW 2134, Australia

Contacts

0492 949 169

[email protected]