Smart ways to approach apartment vs house financing

Lenders treat apartments and houses as different risk categories from the first assessment

Lenders calculate risk on every property using a framework set by the Australian Prudential Regulation Authority. Under Prudential Standard APS 112, which came into force on 1 July 2025, banks assign specific risk weights to residential mortgages based on property classification and loan-to-value ratio. Houses on standard residential blocks typically receive lower risk weighting than apartments, which means better terms for the borrower. The distinction shows up in three places: the deposit required, the rate offered, and the amount you can borrow against the same income.

In Bullsbrook, where most residential stock consists of houses on larger blocks, buyers looking at apartments in nearby Ellenbrook or The Vines often find themselves comparing two different lending environments. A buyer with $50,000 saved might access a house loan at 80% LVR without lenders mortgage insurance in certain circumstances, while the same deposit applied to an apartment often triggers additional scrutiny or a requirement for a larger deposit to avoid LMI.

Why apartment buyers face stricter lending conditions

For a residential mortgage to be classified as a standard loan under APS 112, the lender must hold unequivocal enforcement rights over the property, including a right to possession and power of sale in the event of default. Apartments introduce layers that houses do not: strata title, body corporate solvency, building defects, and resale liquidity. Lenders price that added complexity into the loan structure.

Consider a buyer purchasing a two-bedroom apartment. The lender will assess not only the buyer's income and the purchase price, but also the building's age, the percentage of owner-occupiers versus investors in the complex, the sinking fund balance, and whether any single owner holds more than a threshold percentage of units. If the building is fewer than two years old or has a high investor concentration, some lenders will cap the LVR at 80% regardless of the buyer's financial position. Others will lend to 90% or 95% but apply a rate premium of 0.15% to 0.30% compared to an equivalent house loan.

How deposit size and LMI interact with property type

Lenders mortgage insurance applies to residential loans where the LVR exceeds 80 per cent, and the premium is calculated on a sliding scale based on the loan amount and LVR. For apartments, that sliding scale is steeper. An LMI premium on a house loan at 90% LVR might be 1.8% of the loan amount. The same LVR on an apartment in a building with fewer than six units, or one built in a regional area, can attract a premium closer to 2.5% or may not be insurable at all with some providers.

Bullsbrook buyers using the Australian Government 5% Deposit Scheme, which has been operative from 1 October 2025 and allows eligible first home buyers to purchase with a deposit of as little as 5% with Housing Australia providing a guarantee to the lender, will find the scheme applies to both houses and apartments, but property price caps from 1 October 2025 in Western Australia are $850,000 in capital cities and regional centres and $600,000 in other areas. Bullsbrook falls outside the Perth metropolitan boundary for most government definitions, so the $600,000 cap applies. Houses in the area routinely sit within that threshold. Apartments in neighbouring suburbs with higher density, such as Ellenbrook, may exceed it depending on size and finish. Buyers planning to use first home buyer support need to confirm which cap applies to their chosen property before committing to a contract.

Variable and fixed rates: how property type affects pricing

A house and an apartment purchased at the same price, with the same deposit and the same buyer income, will not always receive the same interest rate. Lenders apply a base rate, then adjust for risk factors. Property type is one of those factors. At current variable rates, a house loan might be offered at the lender's standard discounted rate, while an apartment loan receives a smaller discount or an additional margin.

In a scenario where a buyer is comparing a $500,000 house loan and a $500,000 apartment loan, both at 80% LVR, the house might receive a rate of 6.10% while the apartment receives 6.25%. Over a 30-year term on a principal and interest loan, that 0.15% difference adds approximately $45 per month in repayments, or over $16,000 in interest across the life of the loan. The gap widens further if the apartment is in a building flagged for any of the risk factors mentioned earlier.

Fixed interest rate home loans follow a similar pattern. Lenders offering a three-year fixed rate will apply the same property-type adjustment. A buyer locking in a rate now should compare not only the headline fixed rate but also the margin applied to their specific property. Using a split loan structure, where part of the balance is fixed and part remains variable, can provide some protection if rates fall, but it does not remove the property-type margin.

Borrowing capacity shifts depending on what you're buying

APRA requires all ADIs to assess new borrowers' capacity to service a home loan at an interest rate that is at least 3.0 percentage points above the loan product rate. That serviceability buffer is the same for houses and apartments, but lenders apply additional buffers internally based on asset risk. If you are applying for an apartment loan, some lenders will reduce your maximum borrowing capacity by 5% to 10% compared to a house, even when your income, expenses and deposit remain identical.

A buyer earning $90,000 annually with no other debts might qualify for a loan amount of $520,000 when purchasing a house. The same buyer applying for an apartment loan could see that figure drop to $480,000 depending on the lender's credit policy. For Bullsbrook residents weighing whether to buy locally or move to a nearby suburb with more apartment stock, that difference in borrowing power changes which properties are accessible. If you are planning to use investment loans to build a portfolio, starting with a house rather than an apartment often preserves more borrowing capacity for subsequent purchases.

Offset accounts and loan features: no difference in availability, but check the rate

Apartment and house loans have access to the same loan features. A 100% offset account, redraw facility, split rate structure, and portability are all available regardless of property type. The difference is not in feature availability but in the interest rate attached to the loan that carries those features. If the apartment loan has a higher rate due to property-type risk, the value of the offset is reduced proportionally.

An offset account linked to a loan at 6.10% saves $6.10 per year for every $100 held in the account. The same offset linked to a 6.25% loan saves $6.25. That sounds marginal, but it compounds. A buyer holding $30,000 in offset against a house loan saves $1,830 annually in interest. Against an apartment loan at the higher rate, the saving is $1,875. The benefit exists in both cases, but the apartment buyer is offsetting a higher base cost to begin with.

When an apartment makes financial sense despite the lending differences

There are scenarios where the lending disadvantage is outweighed by other factors. Apartments in established, well-managed complexes closer to employment hubs or public transport can deliver stronger rental yields and faster capital growth than houses in outer suburbs. A buyer purchasing an apartment as an investment property in Ellenbrook, within commuting distance of Bullsbrook, may accept a slightly higher rate and lower borrowing capacity in exchange for a tenant-ready asset with lower maintenance obligations and better depreciation schedules.

Depreciation on the building and fixtures in a newer apartment can be claimed against rental income, reducing taxable income in the early years of ownership. Under current rules, losses from residential investment properties held at 7:30pm AEST on 12 May 2026 continue to be deductible against other income, including salary and wages, preserved by the grandfathering provisions of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026. For properties purchased after that date, losses are deductible only against other income from residential properties, with excess losses carried forward. Buyers holding an investment apartment acquired before the cut-off retain full negative gearing benefits, which can make the higher interest rate more tolerable when the after-tax position is calculated.

The role of LVR in levelling the playing field

Reducing the loan-to-value ratio is the most direct way to neutralise the property-type penalty. A buyer who can provide a 30% deposit on an apartment will often receive the same rate as a house buyer at 20% deposit, because the lower LVR compensates for the higher property risk. If you are deciding between purchasing a house at 90% LVR or an apartment at 70% LVR, the apartment loan may end up with better terms despite the property type.

Buyers with access to family support, savings from a previous property sale, or equity release from an existing home should consider whether a larger deposit on an apartment delivers better overall value than a smaller deposit on a house. The upfront capital commitment is higher, but the interest rate, LMI cost, and monthly repayment can all be lower. For buyers exploring refinancing an existing loan to fund a deposit on a second property, the property type of the new purchase will influence how much equity the lender allows you to access.

Whether you are purchasing a house on acreage in Bullsbrook or an apartment in a neighbouring growth corridor, the lending structure will reflect the property's risk profile as much as your financial position. Call one of our team or book an appointment at a time that works for you to discuss how property type affects your borrowing capacity, rate, and deposit requirement.

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