Quick answer
Usually, yes. Unapproved works rarely stop a private secured loan outright, but they change how the property is valued. A lender will often give little or no value to the unapproved part, may allow for the cost of fixing or removing it, and will check that insurance still responds. Disclosing the works upfront, and starting the approval process if it's practical, keeps the loan on track.
Key points
- Unapproved works don't automatically rule a property out as security
- Expect the lender to value the property largely without the unapproved part
- Works that are unsafe, or that a council has ordered removed, are a bigger problem
- Insurance wording can matter: check how your policy treats the structure
- Disclose the works in your enquiry; surprises found later slow everything down
It’s more common than most people think. The previous owner enclosed the back verandah without asking anyone. The garage became a home office in a weekend. The warehouse has a mezzanine that went in for a tenant fifteen years ago and was never certified. None of it mattered until now, when the property is about to secure a business loan.
The good news is that unapproved works rarely stop a private secured loan by themselves. They do change how the property is looked at, and occasionally they change the answer. Here is how lenders usually treat them, and what you can do to keep the loan moving.
How does a lender treat unapproved works?
Every secured lender starts from one test: what would a buyer realistically pay for this place, and how quickly? Unapproved works make that harder to answer, because a careful buyer will discount for them. The buyer’s solicitor may raise questions, a buyer’s own lender may refuse to count the space, and there’s always a chance the council requires the work to be fixed or removed.
So a private lender usually does three things:
- Values the property largely without the unapproved part. An extra bedroom that isn’t approved may be treated as if it weren’t there.
- Considers the cost of putting it right. If the work might need to be rectified or demolished, that cost comes off the value.
- Checks the rest of the security is sound. The main building, the land and the location still carry most of the value.
We assess value ourselves rather than ordering a sworn valuation, which means no inspection report to arrange and no fee for one. That approach is explained on our no-valuation loans page. Unapproved works are simply one of the factors weighed in that assessment.
Which unapproved works matter most?
Not all unapproved work is equal. A lender is far more relaxed about a pergola than about a habitable extension, and more relaxed about either than about anything unsafe.
| Type of work | How it tends to be viewed |
|---|---|
| Minor structures: pergolas, small sheds, fences | Usually little effect |
| Enclosed verandahs, converted garages, extra rooms | Often valued as if not there |
| Granny flats or second dwellings without approval | Little or no value given; possible rectification cost |
| Commercial mezzanines and office fit-outs | Can affect compliance, tenants and value; disclose |
| Change of use, e.g. warehouse used as offices | May affect zoning compliance and saleability |
| Works on a heritage-listed place | Taken seriously; penalties can apply |
| Anything subject to a council order, or unsafe | A live issue the loan must account for |
Heritage is worth a special mention. Heritage Victoria, for instance, says owners are responsible for checking whether they need a permit before changing a state-listed heritage place, and that significant penalties apply for starting work without approval. If your property is heritage-listed and work has been done without a permit, raise it early.
Does it change how much you can borrow?
It can, because the value the lender works from may be lower than the one you have in mind. Our limits are up to 80% of value on residential security and up to 70% on commercial, but those percentages apply to the value as assessed. If an unapproved second dwelling accounts for a large part of what you think the property is worth, the usable equity may be smaller than expected.
On the other hand, if the unapproved part is minor, it may make little difference. The quickest way to know is to describe it accurately in your enquiry. If you want a sense of the number before you go further, run it past us.
What about insurance?
This is the question owners often forget. Moneysmart notes that home insurance policies vary in how they define the “home” or “building”, and that you may need to read the product disclosure statement to find out what isn’t covered. Unapproved structures are exactly the kind of detail where the wording matters.
A lender needs to know the main building is insured. If the unapproved part may not be covered, that’s a risk you carry, and it’s worth knowing before a storm rather than after. Our guide on insurance for property used as loan security covers what lenders usually ask for.
Should you fix the approvals first?
It depends on the timing and the work.
If the business can wait and the work is likely to be approvable, starting the approval process before you apply can help. Approval requirements depend on your council area, as business.gov.au notes for permits generally, so start with your local council or a private building certifier to understand the route for existing work.
If the business needs funds now, apply with full disclosure and plan to resolve the approvals while the loan runs. Our loans have open terms with no penalty for early repayment, and interest can be capitalised for up to 6 months, which gives you room to sort it out. Once the work is approved, a refinance to a longer-term lender may recognise the higher value.
If the work can’t realistically be approved, consider whether removing it is cheaper than the value it costs you. A lender will be comfortable once the issue is resolved either way.
Whichever path you take, keep the paperwork. Approval certificates, a certifier’s report or evidence that a structure was removed all help the next time the property is used as security or sold, and they make a later refinance to a bank far smoother. A file that answers the question before anyone asks it is worth more than you might expect.
Illustrative example
Illustrative only. The business and figures are invented.
A Wollongong landscaping business needs $200k to buy two excavators and a tipper ahead of a council contract. The owner’s home has a studio above the garage, built by a previous owner without approval, which the owner believes adds about $150k of value.
The owner discloses the studio in the enquiry. The lender assesses the home largely without it, and checks with the owner’s insurer that the main dwelling is covered. Even without the studio’s value, there is plenty of equity behind the existing bank loan for a $200k second mortgage. The loan settles, and over the following months the owner works with a private certifier on approval for the studio. When the business later refinances to its bank, the approved studio is counted.
What should you tell the lender?
- what the work is, roughly when it was done and by whom;
- whether any council notice or order has been issued;
- whether you’ve started approval, and where it’s up to;
- whether the property is heritage-listed or in a special zone;
- what your insurer has said about cover for the structure.
Being upfront is the single most useful thing you can do. Unapproved works discovered late, by a solicitor or a lender’s own checks, cost days. Works disclosed on day one usually cost nothing more than a slightly different number. Our guide on how private lenders assess a loan explains what else goes into that number.
Property not quite by the book? See if you qualify
Almost every property has a story, and an unapproved extension is one of the most common. It doesn’t make you a bad borrower, and it rarely makes the property unusable as security. It just needs to be on the table from the start.
Our loan check takes about 60 seconds, and there’s no credit check when you enquire, so your credit file stays untouched. We don’t spray your details across a panel of lenders. Your enquiry goes to one direct lender, and a specialist reviews the property, works and all, then calls you. Describe any unapproved work accurately, along with what’s owing. Honest answers now mean an answer from us that won’t change later.
Frequently asked questions
Will a lender refuse a property because of an unapproved extension?
Not necessarily. Many properties have some unapproved work, from an enclosed verandah to a converted garage. A private lender will usually assess the property as if that work adds little or no value, and lend on that basis.
Do unapproved works reduce what I can borrow?
They can. If the lender gives no value to an extension that a buyer would otherwise pay for, the usable value is lower. And if the works might need to be removed or rectified, the lender may allow for that cost too.
Should I get the works approved before I apply?
If you have time and the work is likely to be approvable, starting the process helps, and the evidence that you've begun can help the lender. If the business needs the funds now, apply with full disclosure and fix the approvals during the loan term.
What if council has issued an order about the works?
Tell us straight away. An order to demolish, rectify or stop using a structure is a live issue that affects value and sale, so the lender needs to understand what is required, by when, and what it will cost.
Does unapproved work affect my insurance?
It might. Policies differ in how they define the building and what they exclude, so read your product disclosure statement or ask your insurer. A lender wants to be sure the main building is insured even if the unapproved part isn't.
My commercial premises has a mezzanine that was never approved. Is that a problem?
It's worth disclosing. For commercial and industrial property, unapproved mezzanines, office fit-outs and changes of use can affect safety compliance, tenants and value. The lender will usually look at the property without them and ask how they'll be resolved.