Buying and building new
The process of buying a new build—or building your own home—is a bit different to your standard house purchase. Wrapping your head around the different types of construction lending, and other things to watch for to help you buy well, can feel tricky.
This is where a mortgage adviser comes in. Our job is to help make the whole process as simple as possible, and save you money.
Buy off-plan with confidence
There’s a lot to love about new-build living—but when it comes to actually buying off-plan, it can feel like a bit of a leap of faith.
If you’re thinking about going down the new-build route, you’ll want to school up on how the process works, and things to ask to help you get a clear sense of what you’re buying (and make sure it’s going to live up to expectations).
Our team of mortgage advisers will chat to you about what you’re wanting to achieve, provide expert advice and guide you through the process, then we'll approach the right lender for your situation to get you the best deal.
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We've settled over $22 billion in mortgages. And because we're always scouring the market for a better option, you can count on us to sort the best construction lending for your new build.
The pros of buying off-plan
The cons of buying off-plan
Deconstructing construction lending
If you’re buying off-plan, or building new, you'll need to get construction lending. There are a few different types of construction contracts available out there, and it's important you get the right one for you.
Take a look at the different types of construction lending contracts to consider below, as well as the various payment structures.
If it's all feeling a bit much, feel free to get in touch with one of our mortgage advisers and we'd be happy to talk you through your options.
Otherwise, start your mortgage application today and take that first step toward your new home.
Turn Key Contract
This type of construction loan is beneficial to the client, but it can make it harder for the builders. That's because a turn-key contract is essentially a fixed price contract between you and the builder that specifies a fully completed property or renovation, including landscaping, driveways, painting and flooring in the new property.
Things to note:
A turn-key contract only allows for minimal ‘PC Sum’ (non-fixed) costs, meaning that the costs shouldn’t blow out once construction is underway.
This contract is exempt from RBNZ (Reserve Bank of NZ) rules. That means you don’t need a 20% deposit - a 10% deposit (20% for investment properties) is required for turn key contracts, and some banks may even stretch to allow 5% in special circumstances, making this an attractive option for those with good income but less savings.
Another advantage to you the client is that until the property has been completed and settled, you don’t make any loan repayments or pay any interest, allowing you additional time to save before you start to pay off the loan.
If you're ready to take the next step, start your mortgage application today.
Land and Build Contract
This is the most common type of construction loan and builders love this type of contract. Like the turn key, it specifies completion of a ready-to-live-in building with minimal ‘PC Sum’ costs.
Again, like turn key, these loans are exempt from RBNZ policies and therefore banks only require a 20% deposit if it’s an investment property (10% deposit is fine for first home buyers). The big difference is that there are progress payments involved. These progress payments are funds that go to the builder at various stages of the project (outlined in the table). Think of it as a 'pay as you go' approach. You start paying interest on your loan as soon as the first payment is made — which is typically at settlement of the land — and your loan payment increases as each new payment is made.
Progress payments
Firstly, a 10% deposit will be required to secure the contract. This is then included in the first drawdown. Normally paid by cash or equity.
The second drawdown tends to be 20% of the total balance of the build contract.
To give you an idea of how the entire payments might typically pan out, the rules of thumb shown in this table can be used.
| Payment percentage | Work completed |
|---|---|
| 5% - 20% | Site works and foundations, permits and fees, architect fees (includes 10% deposit) |
| 20% - 30% | Wall and room framing — roof installed |
| 15% - 30% | Internal and external lining, doors and windows, plumbing and electrical |
| 10% - 25% | Room fit-out and finish, kitchen and bathrooms, floor and wall coverings |
| 10% | Retention final payment made on the issue of Code of Compliance Certificate (CCC) |
Labour Only/Partial Contract
We wouldn’t recommend you sign one of these bad boys unless you’re relatively experienced in construction contracting and how it all works. If you're a first home buyer, it's unlikely to be for you.
These contracts come in many forms but normally consist of a range of sub-contracts that are managed by either the client or a project manager. There might also be a labour only arrangement with the contractor.
These types of contracts are commonly used in the case of a kit set or relocatable home.
Lending for a labour only or partial contract is limited to the land value only unless the buildings are already permanently fixed to the land. LVR would typically be between 65% - 80% depending on the contract. The bank will also include a 10% - 20% contingency as these loans almost always go over budget.
Other conditions for labour only / partial contracts:
- Quotes for materials and subcontractors required up front
- Progressive drawdowns are made against invoices
- Valuations for each drawdown stage are required to ensure any cost blowouts are identified early
Construction lending conditions
Not only does buying off the plan require a small leap of faith, it also comes with a whole heap of other lending conditions. Here are some typical conditions to expect in a build loan approval:
- Sales and Purchase of the land (or the full purchase price if you are going with the turn-key option)
- Fixed price Master Builders contract
- Building/resource consent
- Registered valuation showing the value 'as is' and 'on completion'. Depending on the bank, you may need an updated valuation at each staged payment and again on completion, or you may just need a completion certificate.
The good news is that the team at Squirrel are here to help
So get in touch with one of our advisers today.
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