Can I get a home loan for a small apartment under 40 square metres?

Compact inner city apartments can be attractive and affordable, but they can also trip up a loan application, because many lenders have a minimum size below which they get cautious. If you are looking at a small apartment, here is how lenders tend to view it.

Why size matters to lenders

Lenders care about apartment size because it affects how easily the property could be resold if a loan went bad. Very small apartments can have a narrower pool of buyers, which lenders see as higher risk. So many set a minimum internal living area below which they tighten their requirements.

The common minimum size

Many lenders set a minimum internal living area, commonly in the region of 40 or 50 square metres, below which they may decline the loan, reduce the maximum loan to value ratio, or require a larger deposit. The exact threshold is set by each lender, so there is no single market wide number.

How the area is measured

How the living area is calculated matters, because lenders generally count internal living space and may exclude balconies, car spaces and storage. An apartment that looks above a threshold on paper might fall below it once only the internal living area is counted, so the measurement method is worth understanding.

Some lenders are more flexible

Not all lenders treat small apartments the same way. Some are more comfortable with compact properties than others, particularly in established, sought after locations. So an apartment that one lender declines on size may be acceptable to another, which is why the choice of lender is central here.

Deposit may need to be larger

Where a lender will finance a small apartment, it may require a larger deposit, meaning a lower loan to value ratio, to offset the perceived resale risk. So even where the loan is possible, the deposit needed can be higher than for a standard property.

Location and building quality count too

Beyond size, lenders also consider the building, the location and any oversupply in the area. A small apartment in a quality building in a strong location is viewed more favourably than one in an area the lender sees as higher risk. These factors interact with the size rules.

Find a lender that will finance it

Because minimum sizes and flexibility vary so much between lenders, the useful step is to match the specific property to a lender whose policy accepts it. A broker can identify which lenders are comfortable with the apartment you are considering, usually at no cost to you. This is general information, not advice.