How postcode restrictions affect your home loan
If you're buying a property in a restricted postcode, your lender may reject your application or approve you for a smaller loan amount.
Key takeaways
- When you buy a property, your lender may limit your options if you're buying in a particular postcode.
- This could be because the postcode has too many apartments or because the lender already has lots of home loans in that postcode.
- Lenders may require a bigger deposit, or refuse to lend you money for an apartment. Houses are usually fine, at least in cities or major suburbs.
Why do lenders impose home loan postcode restrictions?
Every home loan lender in Australia imposes lending criteria on the loans it offers. These criteria are designed to minimise the level of risk to the lender.
A lender's biggest worry is lending money to a borrower who stops repaying the loan. If that happens your lender can sell your home and get its money back.
It's harder to do this if your property doesn't sell.
Risk factors
A lender might flag a postcode as higher risk because:
- It's a regional location. There's less buyer demand for properties in smaller towns or remote regions.
- Overexposure. Your property could be in a good location, but if a lender already has a lot of home loans on its books in that postcode then there's a risk they're overexposed.
- You're buying an apartment. In suburbs with large numbers of apartments it could be harder to sell one in a hurry. It's a bigger risk for the lender if you default on your loan.
- Local risk factors. Any town that relies on a single industry to survive will be viewed as a high-risk location by lenders.
Mortgage defaults occur more commonly in certain areas and on specific property types. By imposing tighter lending restrictions on buyers in those postcodes, a lender can limit its exposure.
What happens if you're buying in the wrong postcode?
Every lender has different rules and offers different restrictions for different postcodes.
- Reduced LVR. Some lenders offer loans with 80% loan-to-value ratio, meaning you need a 20% deposit. But if you're buying the wrong property type in the wrong postcode, a lender could lower your LVR to 70%, requiring a 30% deposit instead.
- Rejection. The lender may simply reject your application completely. In this case you need to find a new lender.
How can I find postcode restrictions for my bank?
Banks rarely publish their postcode restrictions, although they do tell mortgage brokers.
Some lenders make it easier though. Bank Australia has a tool on its website that lets you enter your postcode and property type to see how much you could (hypothetically) borrow.
Every lender has different restrictions. And just because a postcode has restrictions now doesn't mean it's forever. Banks regularly review their lending policies.
Postcode panic
"When I was looking to buy a home, I approached a lender to see how much I could borrow. I had a 20% deposit saved. Everything was looking good. But then I indicated the postcode I was hoping to buy in.
Suddenly I was in a very different situation. My postcode had a large number of new apartments under construction. If I wanted to buy a townhouse, now the lender wanted a 30% deposit! I quickly contacted another lender who said I could buy a townhouse in the same postcode even with a 10% deposit."
Tips for buyers
Get pre-approval.
Pre-approval gives you an idea of how much a lender will let you borrow. It also gives you the chance to discover postcode restrictions which might affect you if you know which postcode(s) you are looking at.
Speak to multiple lenders.
If one lender doesn't want to lend in your desired postcode, other lenders might.
Speak to a mortgage broker.
Mortgage brokers generally have a good idea of the market and what restrictions lenders have.
Research the property market.
By understanding the market you want to buy in, you'll have a clearer idea of how desirable your area is.
Do the Big Four banks have postcode restrictions?
Yes, the big four banks all have postcode restrictions. According to the Commonwealth Bank's website, it has caps on the loan-to-value ratio its willing to lend depending on the suburb a property is located in.
Back in 2017, ANZ released a list of postcodes it would restrict lending in.
Sources
More resources on Finder
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