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ING Direct slashes minimum apartment size by 20 per cent to 40sqm

Updated

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ING Direct is reducing minimum sizes for apartments it will finance by 20 per cent to 40 square metres, which is equivalent to the internal area of three shipping containers.

But rival international bank, Citi Australia, is toughening borrowing terms for higher density apartments, which is believed to be any unit development containing more than 30 apartments.

Small apartments generate bitter rows between governments, developers, planning authorities and residents in the ongoing debate about affordability versus liveability.

ING reducing the size of apartments it will finance AP

For example, Sydney requires 75 square metres for a standard two bedroom unit. In Melbourne there is no set minimum size but some basic design standards.

ING, a wholly owned subsidiary of ING Group, will impose a maximum loan-to-value ratio of 80 per cent for investment loans and 95 per cent for owner buyers on the smaller apartments.

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The size excludes balconies and car spaces.

Commuters that during the week live away from their homes are driving demand for the smaller apartments, a spokesman said. ING does not lend to overseas' buyers.

There are some high density inner suburbs where the deposits may be higher.

Apartments less than 40 square metres remain unacceptable.

It's the second time in 14 months ING has reviewed underwriting guidelines for apartments and units with an internal space of less than 60 square metres.

Last year, it announced those with an internal space of less than 60 square metres – also excluding balconies and car space – and less than five years old will have a maximum loan-to-value ratio of 70 per cent.

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Apartments with an internal space between 50 and 60 square meters –excluding balconies and car space – and older than five years have a maximum loan-to-value of 80 per cent.

Citi, a division of the leading US bank, is increasing minimum deposits by 15 per cent for high density apartments and those purchased directly from a developer, or associated companies.

Loan to value ratios were reduced from 80 per cent to 70 per cent in July 2016.

Citi has a list of list of nearly 87 postcodes and 260 suburbs nationally designated as high density areas.

The bulk of the postcodes are in Melbourne, Sydney, surrounding inner suburbs and up to 15 kilometres from the central business districts.

It includes high rise areas, such as Melbourne's Docklands and central business district, and extends into inner ring suburbs where higher density apartment blocks are popular.

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Citi is reducing variable interest rates on principal and interest loans by 10 basis points for loans settled before 1 May.

It is increasing variable interest rates for interest-only repayments and line of credit products by 30 basis points for loans also settled by 1 May.

Both lenders offer products through mortgage brokers, which act as an intermediary between lenders and borrowers.

Christopher Foster-Ramsay, principal of Foster Ramsay Finance, a mortgage brokerage, said: "We're in a changing lending market that's chasing owner occupied, principal and interest business with unprecedented demand."

Other lenders are imposing tougher conditions on borrowers seeking multiple properties on separate titles located within the same block, or using multiple properties as security.

Firstmac, a non-bank lender with about $8 billion under management, has tightened lending for apartments in developments with more than six floors, it has excluded rental income as a source for servicing the mortgage.

Duncan Hughes is a Walkley award-winning personal finance reporter, based in our Melbourne newsroom. Connect with Duncan on Twitter. Email Duncan at duhughes@afr.com.au

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