A guide to building

Thinking of building? Exciting. Understanding how lending for building works will make your life easier as things progress. Here's a quick guide to the most common ways of doing things.

1. Turn-key new builds

A turn-key is where you sign a contract for a new house to be built, but the developer builds and funds the home under their own steam, and you don't take ownership of the property until the end.

This is the most hands-off way of building a home, and the risks are relatively low - typically all you need is a 10% deposit to secure the build, with the remainder paid at settlement. As it's a fixed price, it means you know exactly what you're in for upfront, which helps with budgeting. As with all big financial decisions, there are risks too.

While this style of build has been incredibly popular for the past few years, there aren't many opportunities to secure a turn-key around at the moment due to the building crisis which is making it hard for developers to fix their prices. You'll need a minimum 10% deposit for the bank to secure a turn-key, with many banks now wanting to see at least a 20% deposit.

2. Buy a section, build on the section

Sounds simple, right? Well, kind of. The biggest challenge here is finding a section to build on.

If you can find a suitable section and show that you can afford to build on it reasonably soon (within 12 months), then typically you'll need around a 20% deposit for both the build and the section (it's possible to proceed with a lower deposit in some circumstances, though).

Once you've secured your section, you can start working with an architect or builder to develop your plans and price your project. You'll need consented plans and relevant council consents before you can start building. Your build contract will need to be a fixed price for the bank to accept it, and will need to include everything down to finishings like a driveway and fencing. You don't want any big surprises down the line, so I always recommend including as much as possible in your plans up-front, otherwise costs can start to balloon if you want to make changes down the line which you may need to cover out of your own pocket.

If you don't want to go down the fixed price route, the banks will still need a detailed quote for the work, and will require a much larger deposit (around 50% or 60%, depending on the bank).

3. Pre-fabs

This is an option becoming a lot more popular, particularly as building costs start to rise and people look to minimise their costs.

While there are many great benefits to building a pre-fabricated home, the big concern for the banks is that they need to advance money for a dwelling that isn't onsite and they have no control over - which leaves them temporarily over-exposed.

As such, they do require a higher deposit, usually around 40% at a minimum. If you can make this work then a pre-fabricated home can be a great way to build whilst keeping your costs in check.

Where do I start?

Good question. Building can seem even more complicated than buying a home - you need to think about everything down to the taps, door stops and plug sockets, let alone where to build, how to build it and who to build it with.

The best starting point is finance. Understanding your options and limitations will mean you can proceed with confidence and you shouldn't have to re-think things as you progress. Knowing your budget upfront will also be super helpful to your architect/builder, and will help them to guide you with what you can and can't do.

Once you have your finance sorted, you can go shopping for turn-keys or sections, and if you're going down the section route you can have a chat to your builder/architect once you have a section picked out.

If you want to talk through your dream build, we're here to help. Why not schedule a catch-up now on our website - we can meet you at our Porirua office, at your home or online with a video call.

Remember - this is not tailored financial advice and should not be acted upon. It's intended as a helpful guide only. Always consult a professional before committing to financial decisions.