Before a lender will give you a home loan, it checks that your property is suitable to act as security for your loan. When it does that, it looks at the location. Home loan postcode restrictions mean your lender sees your suburb as a red flag for some reason. This could be because of an oversupply of units, or because the postcode is in a rural area with few properties and higher risk.
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, ensuring that they only loan money to borrowers who are well placed to service the loan and pay back their debt.
The fact is that 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 to people defaulting on their loans.
Every lender has different rules and offers different restrictions for different postcodes. If you try to buy a property in a restricted postcode, one of two things may happen:
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.
Which postcodes are restricted and why?
Postcode restrictions usually apply to specific areas and types of housing, including:
Rural areas. It can be quite difficult to find financing to buy property in a small rural town. Not only are lenders put off by remote locations and small populations (and therefore small demand), but a lack of similar sales in the area can also make it hard for a bank to determine the property’s market value.
Inner-city apartments. Properties located right in the CBD of a major city are almost always high-rise apartments. There can often be an oversupply of apartments in these areas, making them harder to sell.
Very small homes. Properties that are smaller than 50m2 often have a very small re-sale market, so they're considered riskier by lenders.
Mining towns. Any town that relies on a single industry to survive will be viewed as a high-risk location by lenders. In particular, mining is a real boom or bust industry, so while property prices can soar during peak times, if the industry experiences a downturn then prices will plummet.
Islands. Properties located on islands with boat-only access can also be difficult to find finance for.
A bank may also decide to restrict lending in a particular area if it already has lots of mortgages on properties in the area. If a lender has already approved a large number of mortgages in a specific suburb or in the same high-rise development, it may not be willing to approve any more loans in the same location.
But just because a suburb is in a restricted lending area now does not mean it will stay there in the future. Banks regularly review their lending policies to reflect changing market trends and to maintain an acceptable level of risk.
Case study
Finder's home loans editor switched lenders to avoid a postcode restriction
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, so I needed a loan with an 80% LVR. The lender was willing to lend me more than I needed. Everything was looking good.
But when I was closer to making an offer on a property, I went back to the lender and indicated the postcode I was hoping to buy in. Suddenly I was in a very different situation. My postcode in an inner-city suburb had a large number of new apartments under construction. If I wanted to buy a unit or a townhouse, the lender would lower my LVR to 70%.
I had nowhere near a 30% deposit, and I was looking at townhouses specifically. The lender wasn't particularly clear on whether all townhouses were subject to the restriction, but it wasn't worth the risk. I contacted a new lender and checked if it had any restrictions in the postcode. It didn't.
Because I had only made enquiries with lenders and not a full application, I didn't get rejected. I didn't even submit an application. But if I had submitted a full application, a rejection would have been a red flag on my credit score. This could have made it harder to apply with a new lender.
Richard Whitten
What do postcode restrictions mean for borrowers?
The biggest disadvantage of these postcode restrictions is that they make it harder for borrowers to break into the property market. With access to low-LVR loans only, you’ll need to save a larger deposit before you can qualify for a loan.
The other risk is that you may not be able to access any financing at all to buy in the postcode you want. While this is frustrating and very inconvenient, you may also want to consider the reasons why a lender doesn’t offer loans in your particular area – it may cause you to rethink your decision to buy.
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 will have postcode restrictions. According to 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. This is to reduce the risk in properties which it doesn't deem to be 'active' and means you may need to save a higher deposit.
Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio
Richard's expertise
Richard has written 529 Finder guides across topics including:
Home loan cashback deals can help you refinance to a cheaper interest rate and get a lump sum cash payment. Compare the latest deals and check your eligibility today.
In the market for a home or investment? The right buyer's agent could save you thousands. Learn what a buyer's agent does, how much it will cost and more.
How likely would you be to recommend Finder to a friend or colleague?
0
1
2
3
4
5
6
7
8
9
10
Very UnlikelyExtremely Likely
Required
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Important information about this website
finder.com.au is one of Australia's leading comparison websites. We are committed to our readers and stands by our editorial principles
We try to take an open and transparent approach and provide a broad-based comparison service. However, you should be aware that while we are an independently owned service, our comparison service does not include all providers or all products available in the market.
Some product issuers may provide products or offer services through multiple brands, associated companies or different labeling arrangements. This can make it difficult for consumers to compare alternatives or identify the companies behind the products. However, we aim to provide information to enable consumers to understand these issues.
We make money by featuring products on our site. Compensation received from the providers featured on our site can influence which products we write about as well as where and how products appear on our page, but the order or placement of these products does not influence our assessment or opinions of them, nor is it an endorsement or recommendation for them.
Products marked as 'Top Pick', 'Promoted' or 'Advertisement' are prominently displayed either as a result of a commercial advertising arrangement or to highlight a particular product, provider or feature. Finder may receive remuneration from the Provider if you click on the related link, purchase or enquire about the product. Finder's decision to show a 'promoted' product is neither a recommendation that the product is appropriate for you nor an indication that the product is the best in its category. We encourage you to use the tools and information we provide to compare your options.
Where our site links to particular products or displays 'Go to site' buttons, we may receive a commission, referral fee or payment when you click on those buttons or apply for a product. You can learn more about how we make money.
When products are grouped in a table or list, the order in which they are initially sorted may be influenced by a range of factors including price, fees and discounts; commercial partnerships; product features; and brand popularity. We provide tools so you can sort and filter these lists to highlight features that matter to you.
Please read our website terms of use and privacy policy for more information about our services and our approach to privacy.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
