A Guide to new-build construction loans
It's portable, so you can insure your things now, ready for when you move in. Contract works insurance can cover you against things going wrong while your home is being built. House cover arranged by TSB in conjunction with TOWER provide insurance cover for a home if it is damaged by an unforeseen accidental event such as a natural disaster, fire, accident or storm. If you’ve contributed for three years to your KiwiSaver you may qualify for a KiwiSaver First Home Grant. The KiwiSaver First Home Grant provides eligible first-home buyers with a grant to put towards the purchase of an existing/older home.
“Yes, it could be considered inaccurate, but councils should only need to know the value of the consentable items. So, for example, if we say a house is $2500m² on a consent application, in reality, it’s more of a $3500m² build. Down on the construction site, where boots get dirty, industry experts confirm the soaring building costs. To the end of 2021, nationally, the average price per m² increased from $2359 to $2463. That’s an increase of 4.4% – a far smaller percentage than the growth in median house prices over the same period, which increased from around 10% to 30% nationwide.
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Only available on term loans for building a new residential home. After the Back My Build Variable Rate period our Housing Variable Rate will apply. As the building work progresses, you’ll not only have the joy of seeing your house take shape, you’ll also have to pay your hard working tradies.
These contracts occur when more than one person or business is involved in the build. Some might even be labour-only contracts, where you source the materials yourself. You may also choose to do some of the work yourself, such as painting. Here’s a summary of the different construction contract types to help you get started.
Learn more about your options.
New builds in New Zealand can be anything, from residential lots like townhouses, apartments or free standing homes which can be off the plans or fixed-price contracts. Knowing the differences between property titles is exceptionally helpful at figuring out how much you can borrow. Home insurance protects your house from the unexpected once it’s built, and is usually required for your home loan. If you’re renovating you probably already have insurance in place, but it’s a good idea to review your cover before you start and again once your renovations are complete. With a labour-only contract you normally pay for the labour and materials for your project as agreed with your builder, until it’s complete. This is a flexible way to manage your project, but it could leave you with cost over-runs if anything unexpected happens.
All of these options can be faster and more straightforward to complete, although older relocatable homes may require a lot of finishing or renovation work. You can see a relocatable before you buy it and pre-built home companies usually have showhomes you can explore. However, there may be limited designs available and few options for customisation. To help you get started with choosing the best way forward, here are some of the reasons people prefer to build a new home and a quick summary of the main types of construction contract. Like all banks, BNZ have a packaged product for financing new builds.
What kind of build project suits you?
New build finance is not the same as your typical home loan and that’s one reason that you should have a specialist mortgage broker on your team. First of all you have nothing to lose – I will speak to you and it costs you nothing. In most cases we arrange new build finance for you with a bank and then the bank pays us so there is zero cost to you. Stuart is an Auckland mortgage broker and has been in the industry since 1997, so has been around arranging finance for almost 20-years. As a mortgage broker he is also one of the few that has not worked at a bank, and while some industry people might think this is a disadvantage it does mean that he thinks like an ordinary Kiwi with a “can do” attitude. Find out how much your repayments might be depending on the loan amount, loan type and term.
You can structure your loan so you can draw down funds to suit this schedule. When you’re approved for a home loan to build a house, you won’t have to take the entire loan out at once. By not drawing down your full loan in one go, you'll save on interest payments.
In all cases it’s important to check whether the contract includes earthworks, fixing the home to the land and connecting all services, such as water, stormwater, sewerage, electricity, phone and internet. Once again, be sure to check what is fixed price versus an estimated PC sum, so you can allow for cost over-runs. It’s not always possible to cost everything precisely before the build begins.
A construction loan is usually on a floating interest rate during the construction period and can be fixed upon completion. This means no interest or loan repayments required until the property is completed, settled and ready for you to turn the key in the door, giving you extra time to save. Most lenders will treat the growing mortgage as an interest-only loan during construction and switch to interest-plus-principal repayments once the home is complete. These construction loans normally have a variable interest rate.
This ensures you’re only paying for the work that has been done during the build. There are a few things to consider when thinking about building your own home. If you’re ready to undertake a building project, the first step is to get your finance in order.
The next downside would be the houses are designed in bulk, meaning there are little changes between each home. This can result in the homes lacking in that quirk or personality that is sometimes found in the old houses. The ultimate cost of a new build will depend on a number of factors, from site size, materials, geographical area, how many houses in the development and even the developer. With a little planning and some helpful home loan tools, you can shorten the length of your loan term, reduce the amount of interest you pay, and save money in the long run. Whether you’re after the certainty of a fixed term, the flexibility of floating, or a combination of both, we have a range of competitive rates to offer.
Depending on the type of contract, we may lend up to 90% of the construction contract price². During the project, you only pay interest on the money already paid out. A construction loan is usually on a floating interest rate, which is great if the current interest rate is low.
If you’re trying to keep costs down, Trent advises to avoid the following, which could push the cost of your build well over $4000m². “Construction prices are rising at a phenomenal rate, says Trent Simpkin, of Arcline Architecture. “It’s not at all unusual to see build prices in the $4000s per m², for a normal New Zealand family home. According to Stats NZ, this year, between the March and June quarters, residential building costs rose by 4.2%.
There are a few options you can explore to help fund your build project. Contact us to talk through the steps involved to bring your building project to life – we’re here to help. It should be a time when you focus on the project of building your new home, not stressing about the finance. I would assume that the person at the bank had not even thought about how stressful and frustrating this would be. They would hide behind the fact that this is bank policy and probably do the same for the next finance application for a new build too.
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