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Why lenders sometimes ask for a bigger deposit on condos and townhomes

Attached dwellings such as apartments and townhouses carry layers of risk that lenders evaluate carefully, even when the borrower has a strong income and clean credit history. A freestanding house on its own block of land is treated as a relatively straightforward security, while a unit sharing walls, services and a body corporate introduces variables that can shift the loan assessment in either direction.

In dense markets such as Sydney, Melbourne and Brisbane, where units make up a growing share of new construction, banks frequently apply stricter deposit thresholds. Buyers browsing inner suburbs like Surry Hills, South Yarra or Newstead quickly discover that the deposit required for a two-bedroom apartment can be far higher than the deposit for a comparable house in the outer suburbs.

The gap between a freestanding house and an attached dwelling in the same post code can reach between five and fifteen percentage points, depending on the lender, the building and the loan purpose. Owner-occupiers usually face lower hurdles than investors, and established buildings tend to be treated more favourably than brand-new off-the-plan stock.

Knowing the factors behind these differences gives borrowers a clearer path to plan their savings, time their purchase and structure their application before approaching a lender.

Property type Typical minimum deposit Strata fees in assessment Valuation risk
Detached house on the urban fringe 5–10% No Low
Established apartment in a well-managed building 10–15% Yes Moderate
Off-the-plan apartment in inner Sydney or Melbourne 15–20% Yes High
Small studio or high-density inner-city unit 20%+ Yes High

How lenders categorise attached properties

Lenders generally split the housing market into two broad buckets: freehold standalone homes and what the industry often calls medium-density stock. Medium-density covers townhouses, villas, dual occupancies, units and apartments. Each subtype is then scored on land content, building age, location and the financial health of the owners corporation.

A townhouse on a small parcel of Torrens title land looks very different on a lender's spreadsheet from a high-rise apartment in a forty-storey tower in Sydney CBD, even if both are technically townhouses or units. The land component matters because land tends to appreciate reliably, while the building depreciates. Apartments with very little land share attached to them carry more weight on the depreciation side, which lenders see as additional security risk.

Buyers in markets such as Parramatta, Footscray or Fortitude Valley often find that newly converted warehouses and boutique blocks are assessed more generously than older walk-up units, simply because the construction quality and resale pool are stronger.

Body corporate levies and borrowing capacity

Body corporate or strata fees are a major factor in how lenders calculate how much they will lend. Australian lenders deduct these ongoing costs from a borrower's disposable income before approving a loan. An owner-occupier paying $4,000 a year in levies may see their borrowing capacity reduced by tens of thousands of dollars compared with a buyer of a similar-priced house.

In Queensland and New South Wales, body corporate fees have climbed noticeably over the past few years as buildings absorb insurance premium rises and capital works sinking funds. A unit in a 1990s block on the Gold Coast or in Wollongong might now carry levies that make the same loan amount impossible to qualify for, even with a twenty per cent deposit.

Lenders also examine the sinking fund forecast, the insurance excess and any special levies planned in the next twelve months. A building expecting a $20,000 special levy for roof repairs or lift upgrades can knock a deposit discount off the table entirely.

Valuation risk with off-the-plan and high-density stock

Off-the-plan purchases have grown in popularity across Brisbane, Melbourne and Sydney because of First Home Owner Grant incentives and developer discounts on stamp duty. However, lenders treat these contracts with particular caution. The contract price reflects the developer's expectation, not a market-tested valuation.

By the time the building settles, often two to three years after signing, market conditions may have shifted. Lenders require a fresh valuation at completion. If the valuer comes in below the contract price, the borrower must cover the shortfall with extra cash. A 20% deposit buffer is the standard way lenders protect themselves against this gap, especially in towers with hundreds of identical units that can flood the resale market quickly.

Projects in suburbs with thin resale activity, such as some outer Melbourne growth corridors or smaller coastal towns, attract the largest valuation haircuts. Lenders often quote minimum 15 to 20% deposits for these addresses regardless of the borrower's profile.

Insurance, cladding and compliance concerns

Australia has tightened building standards considerably since the Lacrosse tower review, and lenders track these changes closely. Apartment buildings with combustible cladding, defective concrete or non-compliant waterproofing can be blacklisted by some lenders entirely. Others will lend, but only with a higher deposit and evidence that remediation works are funded.

A growing number of buildings around Mascot, Zetland and parts of inner Sydney have been caught up in combustible cladding remediation orders, leaving apartments in these complexes hard to sell for stretches of time. A buyer relying on future saleability to refinance or upgrade is a risk lenders price into the deposit from the start.

Even compliant buildings face headwinds. Insurance premiums for strata plans have more than doubled in some states, and this cost flows directly into levies, which tighten borrowing capacity and push lenders toward larger deposit requirements.

APRA guidelines and the investor lending climate

The Australian Prudential Regulation Authority sets macroprudential rules that shape how banks lend against residential property. Investment lending caps, serviceability buffers and minimum interest rate floors all influence how much a lender is willing to approve against an attached dwelling. Investors buying units are doubly affected, since stricter serviceability tests apply on top of higher deposit minimums.

Owner-occupiers in owner-occupied apartment buildings are usually treated more leniently than investors in the same building, but the gap is narrower than many buyers expect. Lenders may still require 10 to 15% deposits on established units even for owner-occupiers, particularly in markets where unit oversupply is a known risk, such as parts of inner Melbourne or the Gold Coast high-rise corridor.

Policy settings have shifted several times over the past decade. Borrowers who qualified easily in one year may need a much larger deposit the next, depending on where APRA's settings sit when they apply.

Strengthening your application before you apply

Borrowers who want the smoothest path through the home mortgage loan process can take a few practical steps well before approaching a lender. Reviewing the most recent body corporate minutes, sinking fund report and insurance schedule gives the lender confidence that the building is well managed. Choosing an established building with a healthy sales history, rather than a brand-new off-the-plan tower, often unlocks a lower deposit. Where possible, keeping the loan-to-value ratio below 80% removes lender mortgage insurance entirely, which is particularly valuable for unit buyers whose LMI premiums are typically higher than for houses.

Preparation checklist:

Building a stronger application does not guarantee a lower deposit, but it usually means fewer surprises, faster approval and a better chance of securing favourable loan terms in a competitive Australian property market.