Are You Buying A Home In A Risky Suburb?

High risk or blacklisted suburbs

According to 2016 reports from Macquarie Bank and NAB, there are approximately 120 postcodes across the country that are considered to be ‘high risk’ by lenders. This includes 20 postcodes in Sydney alone, more than double that amount in Queensland and 15 in Victoria.

As a result of the higher risk level, buying an apartment in one of these suburbs will require a deposit of 30% or higher with most lenders.

Lenders such as NAB and Macquarie generally keep confidential lists of these high risk postcodes, which they often refer to as a ‘property blacklist’. In these blacklisted suburbs, they will often require an initial deposit of at least 30% to prove that you will be able to make your repayments.

Buyers might not be aware of it, but many large institutions already do operate some form of blacklist – whether it’s a formal printed document or something decided on a case by case basis for loan applications.

The larger institutions are more likely to need a formal “list” because their exposure to the property market is higher.

For example, if a huge new apartment complex goes up in a densely populated area, one of the Big 4 banks might be keen to limit their exposure to that one development, so they will put limits in place. Meanwhile, a smaller lender such as a credit union may not have an overexposure in that one area, so they may not need a formal written document for their blacklist.

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Showing products in Canstar’s database with links to lenders’ websites. The display is sorted by comparison rate (lowest to highest), based on residential 1-year fixed rate home loans available for a loan amount of $300,000 at 80% LVR, and available for Principal and Interest repayments.

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Should you avoid blacklisted suburbs?

Canstar Research Manager, Mitchell Watson, says aspiring buyers should not need to be discouraged by the existence of property blacklists, but it’s certainly something that they do need to be aware of.

Watson says the question of whether there is a borrowing limit or blacklist for a certain area is something they should ask any lender upfront, before getting a home loan on a property in that area.

“It would be an awful scenario to go along to your favoured bank, get home loan pre-approval for a certain amount of borrowing, find the property of your dreams and then go back to your lender only to be told that no, they won’t lend that much on that property,” he said.

“Rather than limiting their property hunt though, I’d encourage would-be buyers to expand their lender shopping list instead,” said Watson.

“The Big 4 reportedly have around 80% of the home loan market, but the reality is that there are more than 100 home loan lenders in the market.

“On Canstar’s database, 95 out of 98 listed lenders offer home loans with a 10% deposit or less.

“Each of those lenders will have a different appetite for exposure in certain suburbs or apartment developments.

“So unless you’re looking at a really, really bad property purchase decision, chances are you’ll be able to find a lender willing to do business.”

To summarise this point, the bank shouldn’t dictate the area that you choose to live in; you should. You may just have to do a bit of digging here and there by properly researching the property market and choosing the right home loan for your situation.

Canstar can help you do that with our home loans comparison tools. Check out the comparison table below that features a snapshot of the current home loans available for first home buyers seeking a loan of $600,000 in NSW, repaying principal and interest, with links direct to the providers website. Please note that this table is sorted by Star Rating (highest first) for an 80% LVR loan:

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Why are some suburbs blacklisted?

The looming oversupply of apartments in hotspots around the country is likely the biggest contributor to this large number of blacklisted suburbs. Canstar has talked about the current stress placed on the housing market in 2016-17 in great detail.

In its Financial Stability Review for April 2017, the Reserve Bank of Australia had this to say:

“In Australia, vulnerabilities related to household debt and the housing market more generally have increased, though the nature of the risks differs across the country.

“The construction of new apartments and other higher-density housing has increased substantially over recent years, reaching historically high levels.

“This large pipeline of new supply is weighing on apartment prices and rents in Brisbane, while housing market conditions remain weak in Perth.

“Nonetheless, indicators of household financial stress currently remain contained, and low interest rates are supporting households’ ability to service their debt and build repayment buffers.”

That’s why it’s so important for borrowers with a less than 20% deposit to really shop around for lenders.

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What are the risky suburbs for home loans?

According to Macquarie Bank and NAB, there are 120 suburbs across Australia that major lenders consider to be high risk, and as such will require a deposit of 30% or more.

We have separated these blacklisted suburbs by state/territory below.

New South Wales blacklisted suburbs

Victoria blacklisted suburbs

Queensland blacklisted suburbs

South Australia blacklisted suburbs

Western Australia blacklisted suburbs

Tasmania blacklisted suburbs

Northern Territory blacklisted suburb

The only suburb considered to be high risk in the Northern Territory is Alyangula, with the postcode 0885.

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Plenty of loans require a high deposit…

Macquarie and NAB are not alone in wanting a 30% deposit or more; there are a number of home loans on Canstar’s database that require at least a 70% LVR ratio.

There are some benefits to paying a higher deposit. Not only would it allow you to pay off your loan quicker, you will also pay significantly less in terms of interest because the lower your LVR, in general, the lower your interest rate. With a higher deposit, you may be able to avoid paying lenders mortgage insurance. Improving your credit score might also help you be viewed as a less risky borrower and it could even ‘score’ you a better interest rate in some cases.

…But plenty of low deposit options are still available

If you can’t raise a 30% deposit, then according to Canstar’s home loan database, most lenders (95 of the 98 home loan lenders rated) listed offer home loans that require deposits of 10% or less. The likelihood of any postcode or suburb being on an LVR blacklist for all of these lenders is slim. Be aware, however, that with a smaller deposit comes higher overall loan costs.

Be sure to compare home loans and weigh up all the pros and cons before making any decisions:

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