New Builds - Different Banks Policies
Does your bank have the best policy for your build loan?
Purchasing a section and building a new home has become a popular and affordable way to get on the property market in Queenstown. This article takes a brief look at how the various banks construction policies vary and how this impacts you!
Loan to Value Ratio (LVR) – LVR is the percentage of the project cost that the bank are happy to fund, the maximum LVR available when building varies between 80% - 95%, although above 90% LVR is restricted to land and build packages or Turnkey builds. Currently however banks are not showing much of an appetite to lend for Turnkey build projects at the 90-95% LVR level, so effectively it's best to plan on a 10% or more deposit being required.
Valuations – All banks require a registered valuation prior to the build starting of the “as completed” value, based on the build contract and specifications. Some banks however require further valuations during the build, where others don’t which could save you $$. Some banks will also calculate the LVR using the registered valuation instead of using the cost to complete. This can reduce your LVR and save you money on low equity margins/fees.
Fixed price contracts – All the banks have different requirements for what must be included in a fixed price contract. This does depend on LVR, but for some banks the contract must include everything down to the letter box, while some banks allow more flexibility. If you are looking to borrow more than 80%, LVR Provisional costs (PC Sums) are another variant between lenders.
Affordability – Whether you are made aware or not, depending on the bank, they will add between 0-15% of your fixed price contract in servicing to allow for overruns. This could affect the level of borrowings you are able to get. For example, if your fixed price contract was $450,000 then it could actually be assessed at $517,500 (15% more) making a big difference to what you can borrow. These are just some of the differences between the banks when it comes to construction loans. At Loan Market Queenstown we can work with you to make sure you are paired with the most appropriate bank for your construction needs, whilst also ensuring you get the best deal.
The questions you need to ask is does your bank have the best policy for your build loan? Our job is to ensure it does and if not, we will find a finance package that works best for your needs.
Management and Maintenance of Finance
Finding the right loan is only part of the process.
Loan Market will work with you right through the process to completion and beyond so not only do you receive the benefit of our advice around the best policy for your position and intentions, but our support throughout the process until you are ready to draw your first build payment.
It is important to be aware an approval for land and build is up to 90 days with most lenders, and needs to be maintained and updated accordingly which we manage for you. When you work with a bank you will be generally expected to keep on top of this yourself as they are so busy.
Not only that, but we will work with you to ensure you are meeting any outstanding conditions before finance can be drawn down. This means you have the added comfort of us working with you in real time, rather than you being expected to keep on top of your own finance - possibly overlooking some of the ongoing requirements and not being in a position to draw funds when required.