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NEWS

Case Study-Financing A Very Small Property

Monday, December 01, 2014

Financing a very small property 

There's no question that the GFC changed lending. For Maria Vincent, policy changes associated with the GFC meant that the lender she already had a mortgage with wouldn't allow her to release equity from her property to purchase another.

Maria Vincent, having purchased a 36 square metre apartment seven years ago, was recently ready to upgrade and visited her MFAA Approved 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 Maria 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 GFC 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 the MFAA LinkedIn 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 Maria'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 Maria'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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Source: The Mortgage and Finance Association of Australia (MFAA)

 


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