![Westpac introduces new rules around mandatory apartment inspections by a qualified valuer before a final loan offer is made.](/content/dam/images/g/q/6/3/2/d/image.related.afrArticleLead.620x350.gueden.png/1487305038901.jpg)
Lenders are making it harder for off-the-plan apartment buyers by introducing tough new conditions for property valuations needed to have loans approved.
It is the latest tightening in terms and conditions for borrowers by lenders, making it even more important to shop around or seek advice before deciding on a deal, say valuers and mortgage brokers.
Westpac will this weekend introduce new rules around mandatory apartment inspections by a qualified valuer before a final loan offer is made.
The inspection will be done when the valuer can go on to the building site and walk through the building, which because of occupational health and safety rules is typically a few weeks before completion.
"A property must be completed before the valuer can physically inspect and complete the valuation," a confidential Westpac document states about the new rules for off-the-plan buyers that apply from Saturday.
It is considered "best practice" by both valuers and lenders because it provides all parties with the most up-to-date information based upon a range of criteria, ranging from market conditions to quality of finish.
In the past many lenders would make approvals based on the building's plans or desk-top valuations, based on nearby properties or similar structures.
Off-the-plan buyers need a conditional approval at the project's outset based on criteria such as position, fixtures and size.
There is another valuation on completion.
"These new valuations are going to get tougher to mitigate any risk from the original plans," warns Christopher Foster-Ramsay, principal of mortgage broker Foster Ramsay Finance.
That means spotting any differences in the quality of finishes between the show room and the completed apartment, variations in size, whether car spaces are included on the same title as the associated unit, quality of the view and general amenities.
There are also differences in rules between states and territories that can influence the valuation.
For example, in Victoria, balconies, car park and storage cages, which can boost an apartment size by 5 per cent on property titles, are not included in the advertised size.
Tony Kelly, managing director of Herron Todd White, the nation's largest independent property valuation and advisory group, says tougher inspections will guarantee quality and boost industry standards.
But problems could arise for borrowers if the completed apartment's value is less than the original price, either because of market movements or inferior construction.
For example, some industry specialists, who wish to remain anonymous, claim that display apartment fixtures and finishes can often be higher quality than the finished product.
Further, the number of new apartments due to settle over the next two years has hit record highs in Australia's capitals, raising the risk some buyers will not make good on their purchases.
The volume of new apartments is approaching the average number of apartment sales overall in the past five years, according to analysis by CoreLogic.
This problem is most acute in Perth and Darwin, where apartment prices are falling by more than 6 per cent a year, according to SQM Research.
Price growth is strong in Sydney and Melbourne but weakening in Brisbane where annual growth is about 1 per cent.
Kelly says developers will often buy back apartments to prevent lower priced offers from distressed sellers undermining other apartment prices.
Lenders are also making it tough for property buyers, particularly interest-only borrowers. They're introducing higher rates and stricter conditions and requiring greater detail about borrowers' ability to pay instalments and their strategy for repaying the principal.
For example, Macquarie Bank customers seeking a loan will be asked for details on their spending in 12 separate categories covering household and discretionary expenses to assess eligibility.
BankWest, which is owned by Commonwealth Bank of Australia, has announced that generous negative gearing tax breaks will not be available for new borrowers. Without negative gearing, the amount you can borrow drops.
AMP, the nation's largest diversified financial group, is also increasing rates and tightening conditions on selected loans.
But other lenders are exploiting rivals' disaffected customers by offering discounts, cash incentives and special terms — usually through their mortgage broker network.
ANZ is offering up to $1200 for new home or residential loans refinanced to ANZ under its Breakfree package through to the end of April.
NAB is waiving the annual $395 fee for its NAB Choice Package Home Loan and offering $1500 cash back for customers who take out an eligible NAB home loan and banking package.
Westpac and subsidiaries are offering a $1250 refinance rebate for customers applying for a new owner-occupier or investment home loan package.
ME Bank is telling investors they "can continue to borrow" whether it is for a new loan or refinancing.
Its offers include maximum 95 per cent loan to valuation ratio for properties larger than 40 square metres and interest-only terms of up to five years.
Peter Ristevski, a partner with Chan & Naylor, a national advisory group, says one-in-three off-the-plan investors are already facing financial stress completing purchase of their properties because of tough new lending rules.
Many property investors are considering forfeiting deposits rather than having to take out additional loans or find more funds to bridge gaps up to 20 per cent of the property value, warns Foster Ramsay. He adds: "It is getting more and more complicated for property buyers seeking funding. It is important that a property finance professional is involved in the deal to avoid the pitfalls and maximize benefits."