Traps to look out for in off the plan purchases

This month the buyers of apartments in the Arena Apartment complex at 77 Shortland Esplanade Newcastle are taking ownership of their off the plan purchases. For many its been 2 years since they first signed up to buy the apartments and in that intervening period most have made themselves a nice capital gain. But undoubtedly for some the last month will have been stressful as they have tried to arrange the necessary finance to complete their purchases.

Complexes such as Arena present obstacles to obtaining a loan that often arn’t experienced in Newcastle, because most development in the Newcastle area is not considered high density; and the size of the apartments usually fall outside the minimum required by most lenders.

Most lenders have a policy with regards to high density apartment complexes. Whilst every lender has a different definition of what consititutes high density, an apartment complex such as Arena, in which there are 55 apartments over 8 levels, would almost certainly fall under the definition of high density. Policies are what guide the decision to either approve or decline a loan.

With settlement of the Arena apartments happening and many other developments currently for sale I thought that it would be timely to point out some of the restrictions that apply to lending against properties in high density developments which are sold off the plan.

For some lenders they simply don’t accept apartments in high density buildings that are purchased off the plan, for those lenders these apartments are not acceptable securities.

Almost all lenders have a minimum apartment size. Apartments that are less than 40sqm internally are more difficult to finance generally and almost impossible to finance if lenders mortgage insurance is required. (That is, you need to borrow more than 80% of the valuation of the property).

For apartments that are less than 50 sqm internally, most lenders will stipulate that the property is required to have a separate bedroom.

The price of smaller sized apartments often attract those people looking to buy their first property as they are usually the cheapest but beware of the above restrictions.

If you are considering an off the plan purchase in Newcastle and want to discuss a specific apartment please feel free to contact me, Margaret Godfrey, Mortgage Broker Newcastle on 0451 471 061 or email me at mgodfrey@smartline.com.au