Why private lenders refuse some property as security, which types and titles get a lower LVR or a no, and what self-employed borrowers can do instead.
Property Lending Hub
Private Lending · Security Property · Red Flags
Most people assume a private lender will take any property with enough equity in it. It won't. Private lenders decline or restrict property they could not sell quickly if the loan went wrong, and knowing which property falls into that group, and why, tells you where your deal stands before you apply.
Quick Answer
Private lenders refuse or restrict property they think would be hard to sell quickly if the loan went wrong, so very small units, unusual titles, specialised buildings, damaged property and some locations are often declined or lent on at a lower LVR. As a rough guide to how a private lender sorts security:
Green: standard houses and well-run strata units in established areas.
Amber: small or older units, holiday areas, rural land and specialised commercial, often at a lower LVR.
Red: retirement village and student units, serious defects, unapproved works and titles that restrict who can buy.
Also called: acceptable security, security property, collateral. All three mean the property a lender takes a mortgage over and can sell if the loan is not repaid.
Why do private lenders refuse some property as security?
Private lenders refuse some property because their decision rests on one question: if the loan goes wrong, how fast can the property be sold, and for how much? A private lender leans on the asset far more than on your income or tax returns, so the property is its way out. If it is hard to sell, it is hard to lend on.
That idea is called marketability. The lender is not asking whether the property is a good investment for you. It is picturing a mortgagee sale, where the property has to be sold on a deadline to whoever is buying, and asking how much of the debt that sale would recover. That is why private lending policy can look stricter on security than a bank's, even though private lenders are more flexible about income.
Three things drive the answer:
- How many buyers there are. A suburban house appeals to owner-occupiers and investors. A studio in a student building appeals to a handful of investors.
- How long a sale takes. Property that typically sits on the market for months costs the lender interest and holding costs while it waits.
- How predictable the price is. Unique, specialised or damaged property can sell well below its valuation when the seller has no time to wait.
Our guide to private mortgage lenders explains how lenders weigh the rest of a deal, from your exit to the business purpose of the loan.
Which property types do private lenders commonly avoid?
Private lenders commonly avoid property with a small or narrow buyer pool: very small units, student and serviced apartments, company title, retirement village units, holiday lets and buildings made for one kind of business. Most of these are not banned outright. They sit in the amber band, where the lender wants a lower loan, more security or a stronger exit. The table sorts the common types into green, amber, red security and gives the reason behind each.
| Property | Usual band | What can move it | Why lenders care |
|---|---|---|---|
| House on a standard residential block | Green | Condition, an unusual location or a very large block | Deep buyer pool and plenty of comparable sales |
| Strata unit or townhouse | Green to amber | Building defects, special levies or a very small scheme | The health of the building affects resale |
| Studio or very small unit | Amber to red | Often a minimum size, varies by lender | Sells mostly to investors, so the buyer pool is thin |
| Student accommodation unit | Red | Some specialists consider it at a lower LVR | Use and resale are limited by the building's purpose |
| Serviced apartment | Amber to red | The management agreement and lease terms | The operator arrangement restricts how it can be used and sold |
| Company title unit | Amber to red | The company's rules on sale and lending | A sale can need board approval, which slows a forced sale |
| Retirement village unit | Red | Rarely accepted | Resident contracts limit who can buy and how proceeds are paid |
| Holiday let in a tourist area | Amber | How seasonal the local market is | Prices and demand swing with tourism |
| Specialised commercial (fuel, childcare, hospitality, purpose-built) | Amber to red | Often needs a specialist lender | Built for one use, so buyers are few |
| Vacant, rural or hobby farm land | Amber | Zoning, access, services and size | Slow sales and no income from the land |
Two of these have their own detail. Serviced apartments turn on the management agreement, which our serviced apartment finance guide covers, and land without a house on it is treated as its own category in our vacant and rural land loans guide.
Does location matter too?
Location matters as much as property type, because the same unit is easier to sell in a capital city than in a small town with few sales each year. Lenders keep internal postcode lists that lower the LVR or decline some areas, and those lists are not published. Our regional property finance guide explains how lenders categorise postcodes and what that means for your security.
How do lenders treat strata, company title and other unusual titles?
Lenders treat strata title as normal security, but they look past the unit to the building it sits in, while company title and other unusual titles usually move a property into the amber or red band. With strata, you own your lot and share the common property with every other owner through the owners corporation. The NSW Government's community living guidance explains how strata schemes are run and who is responsible for the common property, which is exactly what a lender's valuer is weighing.
In a strata building, the valuer checks:
- Defects and special levies. A building with known defects, or a large levy coming, is harder to sell and can be marked down.
- The size of the scheme. Very small schemes can struggle to fund repairs, and very large ones can be dominated by investors.
- By-laws that limit use. Rules on short stays, pets or business use narrow the buyer pool.
Company title works differently. You own shares in a company that owns the building, and the company's rules can require board approval before a sale or a mortgage. That approval step is what worries a lender, because it can slow or block a forced sale. Other unusual titles, such as a leasehold interest or a share in a property owned with unrelated people, raise the same concern: the lender wants to know it can sell the whole of what it holds without anyone's permission.
Sources: NSW Government, Community living. Read 13 November 2026.
Which property problems make a private lender say no?
Private lenders say no to property with problems a buyer would discover at sale and walk away from: unapproved building work, missing occupation or completion certificates, combustible cladding, council orders, serious structural damage and unfinished construction. Small, unusual or damaged property is where most security knock-backs come from, and damage is the one you can sometimes fix.
Problems a lender can often work around
- Cosmetic wear and dated kitchens or bathrooms
- Minor repairs noted in the valuation
- Heritage listing on a well-kept property
- Approved works with certificates in hand
Problems that usually stop the loan
- Unapproved works or no occupation certificate
- Combustible cladding on the building
- An open council order or notice
- Major structural damage or an unfinished build
Heritage listing sits in between. It can limit what a buyer can change, which some lenders treat as an amber factor, but a well-maintained heritage home in a good area often sells easily. Contamination is a category of its own, and our guide to contamination found on security property covers what happens when it turns up. For building defects already under a defect liability or rectification process, our post on defects and private loans explains how lenders approach them.
Whether a defect, a council order or a building issue can be fixed before you borrow is a question for your builder, certifier or solicitor.
How do valuers and lenders judge hard-to-sell property?
Valuers judge hard-to-sell property by asking what it would fetch in a realistic selling period, as it stands today, and lenders then decide how far to lend against that figure. In practice the valuer decides the risk: the lender reads the valuation for the value, the comparable sales and the comments on marketability, and sets its terms from there.
A few parts of the report matter most for unusual property:
- The type of valuation. A short form or desktop valuation may be enough for a standard house, but unusual property typically needs a full inspection. Our post on valuation types on private and caveat loans explains when each is used.
- The as-is basis. Lenders lend on the property as it is, not as it might be after a renovation or rezoning.
- The selling period and risk ratings. A long estimated selling period, or a high risk rating for marketability, pushes the lender toward a lower LVR or a no.
- Comparable sales. Few recent sales of similar property make the value less certain, and lenders respond to uncertainty with caution.
Commercial property is judged on its income and its tenant as well as the building, which our post on what a commercial valuation actually tests sets out.
When does a lower LVR replace an outright no?
A lower LVR replaces an outright no when the property is saleable but slower or less certain to sell, which is most of the amber band. Here the lender is not refusing the property. It is keeping a bigger buffer between the loan and the likely forced sale price, so the usual answer is a lower LVR instead of a no, varies by lender, and the gap between lenders can be wide.
| Factor | Pushes toward a no | Pushes toward a lower LVR |
|---|---|---|
| Buyer pool | Only one kind of buyer, or none locally | A smaller pool, but recent sales to prove it |
| Condition | Unapproved works, orders or structural damage | Repairs noted but the property is usable and compliant |
| Title | Rules that stop a sale without approval | Unusual title with a clear path to sale |
| Location | Very few sales in the area | A regional centre with an active market |
| Exit | The exit depends on selling this same property | A clear refinance or a sale of other property |
| Other security | This is the only asset offered | A second property can be added to the loan |
The exit strategy carries more weight than people expect. If the loan will be repaid by selling a different, easier property, the lender is less exposed to the hard one. If the only way out is selling the hard property itself, the loan-to-value ratio is where the lender protects itself.
What can you do if a private lender refuses your property?
If a private lender refuses your property, you can usually add security, use a different property, approach a lender that specialises in that property type, or borrow less. Most of the time the fix is simple: add security or shrink the loan.
- Find out the real reason. Ask whether the issue is the property type, the title, the condition or the location. Each has a different fix.
- Add or swap the security. A second property, or a family member's property with proper advice, can carry the loan. Our post on using someone else's property as security covers how that works.
- Use equity elsewhere. If another property has a first mortgage with room behind it, a second mortgage over that property may suit. Our second mortgage guide and second mortgage loans page explain the options.
- Match the lender to the property. Rural land, specialised commercial and some unit types have specialist lenders who know that market.
- Fix the problem first. Getting works approved or an order closed can move a property from red to amber or green.
- Borrow less. A smaller loan against the same property may fit inside the lender's lower LVR.
For more on borrowing against property as a business owner, the Property Lending Hub brings our private lending, caveat and second mortgage content together, and our post on what private lenders need to fund fast covers the paperwork side.
Private lenders accept or refuse property on one test: could they sell it quickly for close to its value if the loan went wrong? Standard houses and well-run strata units pass easily. Small units, unusual titles, specialised commercial and damaged property sit in the amber or red band, where the answer is a lower LVR, more security or a no. Knowing which band your property sits in, and why, lets you choose the right lender and structure before you apply.
Key takeaway: check your property's band first, then add security, change lenders or shrink the loan to fit.Frequently Asked Questions
The types of property lenders consider risky are the ones that are hard to sell quickly at a predictable price, such as very small units, student and serviced apartments, company title units, retirement village units, specialised commercial buildings and damaged or unfinished property. Private lenders feel that risk more than most, because they rely on the security rather than your income. Our private mortgage lenders guide explains how private lenders assess the rest of a deal.
A property is usually disqualified as loan security when the lender doubts it could be sold for close to its value in a reasonable time, or when a legal or physical problem makes it hard to sell as it stands. Common causes are unapproved building work, council orders, serious defects, titles that restrict who can buy, and contamination. Some of these can be fixed before you borrow, and a second mortgage over a different property is another route.
There is no public map of postcodes private lenders won't lend in, because each lender keeps its own internal postcode policy and can change it without notice. Lenders typically restrict small regional towns, single industry towns and areas with few sales, often by lowering the LVR rather than refusing outright. Our regional property finance guide explains how lenders categorise postcodes.
A private lender will sometimes lend on a studio apartment, but many set a minimum internal size, which varies by lender, and lend at a lower LVR on very small units. The concern is resale, because studios sell mostly to investors and the buyer pool is narrow in a forced sale. A valuation that shows recent comparable sales in the same building helps the case.
You can sometimes use a property with unapproved works as security, but most private lenders will value it as if the works were not there or ask for them to be approved first. Unapproved works carry council compliance risk and make a sale harder, which is why valuers often mark them down. Whether the works can be certified is a question for your builder, certifier or solicitor, and our post on building defects and private loans covers how lenders treat them.
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