Why Property Type Shapes Your Investment Loan

Lenders don't treat all investment properties the same way.

A unit in central Geelong with a tenant already in place will be assessed differently from a regional house and land package or a serviced apartment in a CBD tower. The property type you choose affects your deposit requirement, the income the lender will accept, and whether you'll pay Lenders Mortgage Insurance. Before you start comparing loan products, you need to know how lenders view the asset you're buying.

How Lenders Assess Units and Apartments

Lenders typically accept 80% of the gross rental income on units and apartments when calculating your borrowing capacity. If a two-bedroom apartment in Geelong West generates $450 per week in rent, the lender will use $360 per week in their assessment. They assume a higher vacancy rate and additional costs like body corporate fees, which reduce the net income available to service the loan.

Some lenders will shave your borrowing capacity further if the unit is in a building with more than 50% non-owner-occupiers or if it's located in an area they consider oversupplied. Geelong's apartment market has seen growth around the waterfront and Pakington Street precinct, but postcode-level lending restrictions can still apply if a lender flags saturation risk.

Consider a buyer looking at a one-bedroom apartment near the Geelong train station. The property is tenanted at $380 per week, but the lender applies a 20% rental shading and notes that body corporate fees are $1,200 per quarter. The assessed rental income drops to $304 per week, and the quarterly fees add another $92 per week in outgoings. That $380 weekly rent now contributes just $212 per week to serviceability. The loan amount the buyer qualifies for can be $40,000 to $60,000 lower than they expected, depending on their other income and commitments.

Why Houses Usually Get Better Treatment

A standalone house on its own title is typically treated more favourably. Lenders will still apply rental shading, but it's often closer to 80% rather than the 70% to 75% sometimes applied to apartments. There are no body corporate fees to account for, and the lender doesn't need to review strata reports or building defect histories.

In suburbs like Newtown, Manifold Heights, or East Geelong, a three-bedroom house with a long-term tenant might generate $550 per week in rent. The lender uses $440 per week in their assessment, and the only property-specific outgoings are rates, insurance, and maintenance. That's a cleaner serviceability picture and often translates to a higher loan amount or a lower deposit requirement.

Houses also tend to avoid the postcode-level restrictions that can affect high-density apartment zones. If you're borrowing across multiple properties, lenders are more comfortable with portfolio concentration in detached housing than in apartment blocks.

Townhouses and Duplexes Sit in the Middle

A townhouse or duplex on its own title is usually treated like a house. If it's part of a strata scheme with shared walls and common property, it may be assessed closer to a unit, depending on the lender. The distinction matters because it affects both serviceability and valuation.

Some lenders will accept 80% of rental income on a torrens title duplex in Highton or Grovedale, but only 75% on a strata title townhouse in the same suburb. The valuation can also be more conservative if the property is part of a large complex or if there's a history of special levies. If you're comparing two similar properties and one is torrens title, that difference can add $20,000 to $30,000 in borrowing capacity.

Specialist Property Types Come with Restrictions

Serviced apartments, student accommodation, and properties with commercial components are treated as specialist assets. Most mainstream lenders won't touch them, and those that do will require a larger deposit and charge a higher rate. Rental income is either heavily shaded or ignored entirely, and the loan to value ratio is capped at 70% or lower.

If you're looking at a serviced apartment on the waterfront or a mixed-use property on Moorabool Street, expect to put down at least 30% and pay an interest rate 0.5% to 1% higher than a standard investment loan. The property might generate strong returns, but the lending structure is less flexible and refinancing options are limited.

How Property Type Affects Your Deposit and LMI

Most lenders will lend up to 90% of the property value for a standard house or unit, but that ceiling drops for anything outside the mainstream. A regional property, a property over a certain land size, or a unit in a building flagged for defects may be capped at 80% loan to value ratio, meaning you'll need a 20% deposit to avoid Lenders Mortgage Insurance.

Even when 90% lending is available, LMI premiums vary by property type. A $500,000 house in Geelong with a 10% deposit might attract an LMI premium of $16,000 to $18,000, while a $500,000 apartment in the same postcode could be $18,000 to $21,000 due to the lender's higher risk weighting. If you're comparing properties at the same price point, the LMI difference alone can shift your upfront costs by several thousand dollars.

What Lenders Look for in Valuation Reports

The property type shapes what the valuer includes in their report and what the lender's credit team will scrutinise. For a unit, the valuer will note the number of units in the complex, the percentage of owner-occupiers, any special levies on the horizon, and whether the building has any defects or cladding issues. For a house, the focus is on land size, zoning, and comparable sales.

If the valuer flags concerns, the lender may reduce the approved loan amount or decline the application outright. A unit in a building with active defect claims or a house on a flood-prone block can both trigger a lower valuation or a request for a larger deposit. This is where local knowledge helps. Geelong has pockets with known issues around drainage, heritage overlays, or bushfire zones, and a broker familiar with the area can flag these before you make an offer.

Choosing the Right Property for Your Lending Position

Your borrowing capacity and deposit size should guide the property type you target, not the other way around. If you're working with a 10% deposit and limited surplus income, a house in a high-demand suburb will give you the most borrowing capacity and the widest choice of lenders. If you're looking for a lower entry point and can manage the serviceability impact, a unit closer to the CBD might work, but you'll need to account for body corporate fees and rental shading.

If you're building a portfolio and already own one or two properties, lenders will start looking at concentration risk. Adding another apartment in the same postcode might trigger a decline, while a house in a different suburb keeps your portfolio diversified. Working with a broker who understands how lenders assess property type across multiple assets can keep your portfolio growth on track without hitting serviceability limits too early.

The property you choose should fit your investment strategy, but it also needs to fit the lending criteria of the banks and lenders you're applying to. That's where the real planning starts. Call one of our team or book an appointment at a time that works for you.

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