First-home buyers in Sydney are facing an unexpected problem as they try to make their inner-city purchases, with banks refusing to finance properties because they are too small.

The Daily Telegraph reported that this is a common situation for Sydney first-home buyers, as banks tighten their lending requirements on home sizes.

There are a number of inner-city properties that have recently hit the market with price tags of $650,000 or less. However, these are mostly studio and one-bedroom units.

For instance, a house in Paddington advertised at $410,000, which had just 21 square metres of space, was checked by roughly 80 groups, about half were first-time buyers.

McGrath selling agent Nicholas Wise told The Daily Telegraph that none of the first-home buyers were able to obtain financing for the property because of its size.

Many first-home buyers expected this year to be the perfect time to enter the market given the implementation of stamp duty benefits for properties priced up to $650,000.

“If the banks were only a bit more flexible with the smaller apartments, we’d have lots of happy first homebuyers," said Laing and Simmons-Potts Point director Nuri Shik.

Some banks have strict size requirements for financings: the National Australia Bank requires homes with a size of at least 50 square metres while ANZ, Westpac, and St. George only approve financings of homes bigger than 40 square meters. Additionally, first-home buyers face longer pre-approval periods.

“They’re close to the city, they’ll rent well, there are lots of single people around but banks make it so hard," Shik said.

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