Aspiring Law
11 May 2022, 1:14 AM
December 2021 saw a massive overhaul of bank lending rules and who banks can lend money to, with banks and other lenders required by law to rigorously assess whether people can afford to borrow or top-up their credit. These rules are now set to be eased by the Government and changes are likely to be in force in June this year.
Many of the lending restrictions do not apply to ‘new-builds’ however. The Government wants to ensure potential buyers continue to support the increase in housing stock by purchasing new-builds off the plans or by building themselves.
Currently, buyers only need a 10 percent deposit to purchase a new-build, compared to a 20 percent deposit for an existing property. What’s more, new-builds are exempt from the 10-year brightline tax and changes to interest deductibility rules.
What constitutes a new-build today can vary though, depending on what exemptions you’re looking at. But, for our purposes let’s imagine a brand-new house being built on an empty section to be used as a main home.
The Land
If you’re looking to build a home, the first thing you need is land to put it on. Make sure you understand, or have someone (preferably a lawyer), explain to you what restrictions may apply to that land. For example:
The Build Contract
In order to build your property, you’ll need to find a builder. If you’re in the trades industry yourself, you may have someone to guide you and do the heavy lifting for you, or you may even be confident managing the build project yourself. For regular folk though, a good place to start is by approaching a well-reputed building company like G J Gardner or Signature Homes.
Each building company will have its own processes but be aware, it’s not as simple as just rocking up and signing a fixed-price build contract that you can then take to the bank. You may need to get the land surveyed, have a building consent issued or scheme plans put together. It could in fact be six months of preparation before you even sign the building contract!
It’s a good idea to approach the bank a few months before you anticipate signing the build contract, ideally once you have a quote from the builder, so that you know how much money you’ll need to borrow.
The Lending
Because there are some additional complexities involved in building a property, the bank will slip a few conditions into its lending approval.
Here are a few common conditions to look out for:
The Takeaways
Communication is key. Make sure your builder and bank are on the same page, payment schedules in your lending and build contract should align, provisional cost sums are monitored, delays are allowed for, and the appropriate insurance is in place.
Be sure to get the right advice. Speak to your lawyer, accountant, and mortgage broker to ensure you are making effective, informed decisions throughout the entire new build process.