Common Mistakes When Buying a Strata Property

A strata title property is not harder to finance than a freehold house, but the loan application depends on details most buyers do not look at until the valuer raises an issue.

Strata properties include apartments, townhouses, and units where you own your individual lot and share ownership of common property with other lot owners. Lenders assess these properties differently because the value and saleability depend partly on the condition and management of the building or complex as a whole. For SA public sector employees purchasing strata title homes, understanding what lenders check before they approve your home loan application prevents delays and protects your deposit once the contract goes unconditional.

Why Lenders Review the Strata Report Before Approving Your Loan

Lenders require a strata report because it shows whether the building is managed properly and financially stable. The report includes information about levies, the balance of the sinking fund, any special levies planned or underway, insurance coverage, and whether the owners corporation has outstanding disputes or major defects. If the sinking fund is low, special levies are pending, or there are structural issues, the lender may reduce the amount they will lend or decline the application outright.

Consider a public servant purchasing a two-bedroom apartment in an older complex near the Adelaide CBD. The contract is signed subject to finance. The strata report arrives showing a sinking fund balance of $8,000 for a building with 32 units, no major works completed in the last decade, and a special levy of $12,000 per unit approved to replace the roof and repaint external surfaces. The lender reviews the report and decides the building presents a higher risk due to inadequate reserves and deferred maintenance. They agree to lend, but only up to 70% of the purchase price instead of the 90% initially discussed. The buyer does not have the additional funds required and the contract falls through during the finance clause period.

What the Sinking Fund Balance Tells a Lender About Future Risk

The sinking fund is money set aside by the owners corporation to pay for major repairs and capital works. Lenders look at the balance relative to the size and age of the building. A large complex with ageing infrastructure and a low sinking fund suggests that owners will face special levies in the near future, which increases financial pressure on borrowers and may reduce the property's resale appeal.

If the sinking fund balance is below what the lender considers adequate for the building, they may apply a higher interest rate, require a larger deposit, or cap the loan to value ratio at 80% even if you qualify for a low deposit loan or an LMI waiver based on your employment. In our experience, public sector employees are often surprised that a strata issue can override the lending benefits available through their employer, but property risk and borrower income are assessed separately.

Owner-Occupier Ratios and Why They Affect Your Borrowing Capacity

Most lenders set a minimum percentage of owner-occupied units within a strata complex. If too many units are tenanted or used for short-term accommodation, the lender views the building as higher risk due to increased turnover, less stable management, and potential resale difficulty. The threshold varies by lender but typically sits between 50% and 70% owner-occupier.

This matters when you apply for an owner occupied home loan in a complex with a high proportion of investors or Airbnb operators. Some lenders will lend only on a reduced LVR, while others will not lend at all. Checking the owner-occupier ratio before you make an offer saves time and avoids putting down a deposit on a property your lender will not support.

How Strata Levies Affect Your Borrowing Capacity

Strata levies are treated as an ongoing expense in your loan application, similar to rates or body corporate fees for a community title property. Lenders include quarterly levies in their serviceability calculation, which reduces the loan amount you can borrow. A higher levy reduces your borrowing capacity more than a slightly higher purchase price would, because the levy is an ongoing commitment that affects your ability to service the loan.

In a scenario where a public sector employee earning $95,000 per year applies to borrow for a unit with quarterly levies of $1,800, the lender deducts $7,200 per year from the applicant's available income when calculating how much they can afford to repay. If levies were $1,200 per quarter instead, the same applicant could borrow approximately $20,000 more, depending on other debts and expenses. The difference is significant when you are trying to stay within a price cap for the Australian Government 5% Deposit Scheme, which allows eligible first home buyers to purchase with a deposit as low as 5% without paying Lenders Mortgage Insurance.

What Happens When a Building Has Unresolved Defects or Legal Disputes

Unresolved defects or legal disputes involving the owners corporation create uncertainty about future costs and property values. Lenders will not approve a loan if the strata report shows active litigation against the developer or builder, unresolved water ingress, structural cracks, or non-compliant building work, particularly if the cost to rectify is unknown or the owners corporation does not have funds to cover it.

If you have already signed a contract and the strata report reveals these issues during your finance approval period, you may be able to exit under the finance clause. If the contract has gone unconditional, you are generally committed to settle even if your lender withdraws their approval. This is why requesting the strata report before signing, or making your offer subject to a satisfactory strata report as well as finance, protects your position.

When a Lender Will Not Accept a Strata Property at All

Some lenders exclude certain types of strata properties from their lending policy regardless of the borrower's income or deposit size. Serviced apartments, properties with commercial use on the ground floor, student accommodation buildings, and complexes with less than four units are commonly restricted. Short-term letting restrictions in the by-laws can also make a property ineligible if the lender views the building as operating more like a hotel than a residential complex.

If you are looking at purchasing a studio apartment in a building that allows short-stay accommodation, or a unit above a retail strip, confirm with your broker that your intended lender will accept the property type before you commit. Not all lenders take the same view, and moving to a different lender may resolve the issue without requiring you to change your property choice.

What You Can Do Before Making an Offer

Request a copy of the strata report from the selling agent before you make an offer. Most agents have a report prepared as part of the sales process. Read the financials, check the sinking fund balance and any special levies, and review the meeting minutes for disputes or deferred maintenance. If the agent does not have a report, you can order one independently through a strata search company before signing anything.

If you are a first home buyer using the Australian Government 5% Deposit Scheme or Help to Buy, check that the purchase price and lender valuation will both sit under the applicable price cap for your area. In SA, the cap is $900,000 in Adelaide and regional centres and $500,000 in other areas. Both schemes have additional eligibility rules, and not all lenders participate, so confirm your options during loan pre-approval rather than after you have made an offer.

Call one of our team or book an appointment at a time that works for you. We work with lenders who understand strata properties and who offer specific lending programs for SA public sector employees, including access to LMI waivers and discounted interest rates. Getting your finance structured properly before you start looking means you know exactly what you can borrow and which properties your lender will support.

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