An increasing number of first time house and land buyers are opting for the newly built route to home ownership in order to bypass the Reserve Bank’s loan-to-value (LVR) restrictions. According to Christine Lockie of integrated financial services provider LoanPlan, their company is seeing a sharp rise in first time home buyers who are planning to build their homes. However, this is a complicated process and buyers have to be extra diligent so as not to be exposed to risks.
The reason why first time house and land buyers opt to building their home is the exemption provided by Reserve Bank of New Zealand on its LVR restrictions. Those who are qualified for double the amount under the government funded Welcome Home Loan Scheme prefer to build new homes than invest in established property. However, it is important to note that not all newly built homes are exempted from Reserve Bank restrictions.
In the Auckland area there is a trend for new builds but banks have set more rigid conditions on new build mortgages. There are several ways to build a home but some are more risky than others. There are options available to buy a house and land package through a building company but while it is a safe strategy, it is often more expensive that other new build options.
Some house and land packages will require a deposit upfront with the balance paid at an agreed value upon the completion of the work. On the other hand, home buyers may opt to buy land first and build a new home after the payment for the land is settled. There is also a problem with this option because the bank makes progressive payments during the construction project but measures the payments against the value of the property.
People who are considering an investment on land for the purpose of relocating a house on the land need to determine whether they can fund the initial house purchase since the bank may not consider it as security until it has been sited and hooked up to the services. It is also important to ensure that you can build a new home and pay interest on the bank loan while you are still making payments for your apartment rent.