The 42-square-metre studio the bank refused
A first home buyer finds a light-filled 42sqm studio near Summer Hill station at a price she can genuinely afford. Her bank, where she has banked since school, declines: internal space under their minimum. Nobody explains that this is one lender's rule, not a law of lending. The apartment is financeable; the lender was wrong for the apartment.
The situation
Stable income around $98,000, a $110,000 deposit built over seven years, spotless credit. The studio is in a well-run 1970s block of forty units, internally 42sqm plus a balcony, with a healthy strata balance sheet and no special levies on the horizon.
The problem
Lenders worry about resale liquidity on very small apartments, so many set internal-size minimums, commonly around 50sqm, some at 40, a few lower for the right building and location. Her bank sits at the strict end. The decline says nothing about her; it describes the intersection of one policy and one floor plan, as our under-50sqm guide explains in detail.
What made it difficult
Three measurements decide the file: what the strata plan says the internal area actually is (balconies and car spaces usually excluded, and marketing floor plans routinely differ from the registered plan), which lenders accept that number in that location, and what conditions they attach, typically a lower maximum loan-to-value ratio, meaning more deposit. Her strong deposit is suddenly the most valuable feature of the file.
What a broker assesses
The registered strata plan, not the agent's brochure, the assessment stands on the legal number. The building itself: lenders that flex on size still care about the block's health, so the strata records matter. The lender shortlist for 42sqm near a transport hub in the Inner West. And the loan-to-value mathematics: at 80% lending, her deposit covers the gap comfortably, which is exactly why the file works.
Illustrative sequence, the order and availability depend on the actual file and lender policy at the time.
The lending considerations
Small-apartment lending is a security question, and conditions are the currency: expect lower maximum LVRs, closer attention to the building, and occasionally a valuation that comes back conservative. The strategy is to let the deposit absorb the conditions rather than fighting them. What deserves genuine caution: very small studios in investor-heavy new towers, where size rules, valuation risk and off-the-plan dynamics stack on top of each other.
What borrowers can take from this
If a bank declines your apartment on size, you have learned about one policy, nothing more. Get the registered internal area before you fall in love, it is the single number that determines the lender field. And read the strata report as carefully as the loan documents: on small apartments, the building is half the application.
Related guides
This is an illustrative example scenario, not a description of a specific client and not a testimonial. The figures are realistic but rounded, no lender is named, and no outcome is promised, every application is assessed on its own facts. General information only, not credit or financial advice.
The apartment is probably financeable.
Twenty minutes with Charles: the registered size checked, the lenders that accept it, and the deposit structured to carry the conditions.
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