Building a New Home Without Breaking the Bank /

Advice from Mortgage Adviser Nathan Miglani

It sounds almost too good to be true: building a brand-new home with as little as 5 per cent deposit! Exemptions to the LVR restrictions mean building new is an option that’s affordable – as well as appealing. But not all new builds are financed the same… here’s what you need to know.

First of all, if you’re counting on securing finance with a 5 per cent deposit, you’ll need to be buying a house and land package (also known as a ‘turnkey’ home). These are the properties typically advertised by established building companies. The house is built on land that’s owned by the building company (or, you may be able to negotiate for them to buy your chosen piece of land on your behalf ). You pay a deposit and they continue to hold ownership of the land – and the house they’re building for you – until the build is complete. At that point, you pay the rest of the money and ownership of the house and land is transferred to you. The major plus for buyers is that you won’t need to worry about making progress payments along the way – but the total cost will usually be higher.

On the other hand, if you’re taking the more traditional route of hiring an architect or draftsperson to design your home and then hiring a builder to construct it, the 5 per cent deposit won’t apply – you’ll need ‘construction finance’ with a minimum 10 per cent deposit. And to qualify for this level of lending, you’ll need to demonstrate that you intend to start building straight away with a full fixed-price building contract from a Registered Master Builder or Licensed Building Practitioner. You’ll start by drawing down just the portion of the mortgage needed to purchase the section. This is often an interest-only loan, but you’ll still need to factor the repayments into your living costs throughout the building process. When construction begins on your home, you’ll draw down the rest of the mortgage in portions to pay your builder as construction progresses. So, although the total cost of the build will likely be cheaper, your living expenses will be more costly throughout the build.

And, if you haven’t quite made up your mind about the build but want to go ahead and secure the section anyway, be aware that you’ll be needing a deposit of about 35 per cent. The banks consider bare land to be ‘dead security’ so they would much prefer that you start building straight away!

If you’re looking to build, get in touch with me and we can talk about the best way to finance your new home – without breaking the bank!

Years of experience mean Nathan Miglani knows how to give you the best possible chance of success with your mortgage application. Passionate about helping you through the process of buying a home or business, he’ll find the best deal for your unique circumstances. loanmarket.co.nz/nathan-miglani