Buying a Unit Title? What Your Bank is Actually Looking For

A quick heads-up before we dive in: This article is strictly for general informational purposes and does not constitute financial, legal, or tax advice. Every situation is entirely unique, and bank lending policies change frequently. Before making any decisions about your property journey, it is highly recommended that you seek independent advice from a qualified financial adviser.

Whether it is a sleek inner-city apartment, a low-maintenance townhouse, or a lock-and-leave unit, buying a "unit title" property is an incredibly popular way to get on the New Zealand property ladder. They often come with a more accessible price tag and the major perk of someone else mowing the common lawns!

But from a mortgage lending perspective, buying a unit title isn't quite the same as buying a standalone freehold house in the suburbs.

When you buy a unit title, you are buying your specific unit, plus a shared interest in the common property (like the driveway, the foyer, or the roof). Because of this shared ownership, banks tend to look at these applications through a slightly different, more cautious lens.

If you are hunting for a townhouse or apartment, here is a guide to what the bank is really scrutinizing behind the scenes, and how to make sure your application sails through.

1. The Shoebox Test: Size Really Does Matter

When it comes to lending on apartments, banks typically pull out their measuring tape.

Most major New Zealand lenders have minimum size requirements for unit title properties. Generally speaking, banks love standard-sized apartments (usually anything over 45 to 50 square meters, excluding balconies).

If you are looking at a smaller "studio" or "shoebox" apartment (often under 38 square meters excluding balconies), you might find the lending rules suddenly get much stricter. Banks often view smaller units as higher risk because they can be harder to sell in a market downturn. Because of this, some lenders might require a much larger deposit—sometimes up to 50%—for a very small apartment, even if you are a first-home buyer.

2. Body Corporate Fees: The Hidden Hit to Your Borrowing Power

When you own a unit title, you automatically become part of the Body Corporate, which means paying annual Body Corporate levies. These fees cover shared expenses like building insurance, common area maintenance, and exterior cleaning., but different Body Corporate (Body Corp) fees cover different expenses, so always check with the agent and your solicitor as to what your body corp fee covers.

In our experices, Body Corp fees can range anywhere from around $1,000 to $15,000 dpeending on what it covers and the expected amount of maintenance.

While paying these levies is completely normal, banks treat them as a hard financial commitment.

When the bank calculates how much you can afford to borrow, they will take that annual Body Corporate fee (say, $4,800 a year) and deduct it directly from your usable monthly income ($400 a month). Just like a student loan or a car payment, a high Body Corporate fee means you have less "spare cash" in the bank's eyes, which can noticeably reduce your maximum borrowing capacity.

3. Reading the Minutes: The Bank's Detective Work

If you are buying a freehold house, the bank generally just wants to know it is structurally sound and insurable. If you are buying a unit title in a larger complex, the bank wants to know that the entire building is healthy.

In New Zealand, the shadow of leaky building syndrome still looms large. Before a bank will approve your loan on a unit title, they will usually ask to see the Body Corporate meeting minutes from the last few years, along with the Long-Term Maintenance Plan (LTMP).

They are essentially looking for red flags:

• Are there ongoing arguments about the roof leaking?

• Is the exterior cladding failing?

• Has the building recently failed a seismic (earthquake) test?

If the meeting minutes reveal that the complex has major, unresolved structural or weathertightness issues, the bank will often decline the loan entirely to protect both you and them from a financial disaster.

4. Sinking Funds and Special Levies

Leading on from the health of the building, the bank will also look at the Body Corporate's bank accounts.

A well-managed Body Corporate will have a healthy sinking fund (a savings account for future repairs like painting the building,, repairing the roof, or replacing the lift).

If the building needs a new $200,000 roof but the Body Corporate has no savings, they will likely issue a Special Levy. This means every owner suddenly gets a massive, unexpected bill for their share of the roof. Banks are highly wary of buildings with poor maintenance savings because they know a sudden $20,000 special levy could easily push a homeowner into financial hardship.

5. The Deposit Differences: The 5% Exception vs. The 15% Rule

Because banks view apartments as a slightly different risk profile than standard freehold land, the size of the deposit you need can vary wildly depending on your situation.

• The Kāinga Ora 5% Exception: The brilliant news for first-home buyers is that if you meet the income caps and eligibility criteria for a Kāinga Ora First Home Loan, it may be possible to buy an apartment with just a 5% deposit. Because the government underwrites the loan, participating banks will gladly bypass their usual strict apartment deposit rules.

• Standard Bank Lending: If you don't qualify for Kāinga Ora, things get a bit trickier. Different banks have very different requirements, for a few, 10% is ok, most 15% deposit, and for one or two, 20% deposit is required, so getting the rifght advice on which bank to go with is key.

• The Shoebox Penalty (40% to 50%): If the apartment is under 38sqm, or is a studio where the bedroom and living area are the same room, mainstream lenders view it as a high-risk security. In these cases, even if you are an excellent saver, you usually need a massive deposit of 40% to 50% just to get in the door.

How to Buy a Unit Title Safely

Buying a unit title is an excellent way to secure a home or an investment property, provided you do your homework! Before you fall in love with an apartment or townhouse, it is incredibly important to have your lawyer thoroughly check the "Pre-Contract Disclosure Statement" to ensure the Body Corporate is healthy and functional.

How Home Loan Factory Can Help

Because different New Zealand banks have vastly different rules around minimum apartment sizes and deposit requirements, going to just one bank can severely limit your options.

At Home Loan Factory, we know exactly which lenders are currently the most friendly toward unit titles, apartments, and townhouses. Before you even make an offer, we can run the specific property's Body Corporate fees through our calculators to show you exactly how it impacts your borrowing power, and we can match you with the lender whose criteria best fits the size and style of the unit you want to buy.

Looking at buying an apartment or townhouse? Get in touch with the team at Home Loan Factory today for a clear, easygoing chat about your lending options.