We have recently seen a significant, 25%, increase in home building inquiries from first time home builders in 2017, as awareness about the LVR exemptions for residential home builds grows.
Our CEO Paul Bull says first home buyers, particularly in Auckland, are giving up on the inner suburbs and literally fleeing to greener pastures because it’s easier to borrow money for a home build, and many of the old risks associated with over capitalising on new builds no longer exist.
"I can’t blame them. Who wants to live in a second-hand house in congested old suburbs? Building your own home in 2017 is low risk and makes financial sense. By the time you've managed to save a 20% deposit, or $191,200, for a $956,000 existing house (the median house price in Auckland) – the price of the house will have already increased.
"It's like chasing your tail. It's not a race first home buyers can win, and there is growing awareness of that. Nowadays if you meet the lending criteria you can arrange finance on a new build with as little as 5% deposit, with payments commencing when you move in to your new home. And we can guarantee that your home will be finished at the agreed price," says Paul.
Managing Director of mortgage financier Newbuild, Ian Webb, says a major obstacle for new home builders has always been the ‘unaffordability’ of the process, not the actual house, because people are required to live somewhere and pay rent while they wait eight to twelve months for the house to be built.
"Now we can structure the loan to the needs of the borrower. For example, they may want to make a progress payment, interest only payments, or no payments while building is in progress.
"It depends on the buyer and their financial position, but for example, interest can be capitalised (added to the loan). We also build in funding for contingencies, and any unused funds belong to the customer and are returned to them at the end of the build process."
The finance to build a home is at mortgage rates advertised by a major bank – there is no premium added to the construction loan interest rate – so you pay exactly what you would pay the bank on a similar home *loan.
"It is important to remember that if your bank declined a mortgage application, don't assume everybody else will too," says Ian.
In addition new homes will meet all the new building code standards, make use of modern building materials and technologies and will be designed for modern living, so their resale value is often higher than a second hand home.
"When you have the option of building with a deposit from five per cent for residential owner occupiers, and from ten percent deposit for residential investors, it’s a no brainer to build in this market.” says Paul.
*A low Equity Margin may apply with less than 20% deposit.