In today’s runaway housing market, does a relocatable home represent a viable option for first-home buyers? Rupert Gough investigates.
I don’t know if you’ve heard, but housing in Auckland has got a tad expensive.
Each week there are many articles touting either the inevitable downfall of property or the infinite despair of the first-home buyer. I know this, because it’s my job to load up our social media accounts with relevant articles and, frankly, it takes no time at all. There are a ton of news articles out there whenever I want them.
And then I get this call.
My client has found a section for a reasonable price, about an hour or so north of Auckland, and they’re going to put a relocatable house on it. It’ll cost $400k to build or they can simply buy a house and have it moved there for $150k. Sounds easy, right? So, why isn’t everyone doing this?
Most of the problem comes down to a cash flow issue. With a $400k house, the banks can lend you 80 per cent (sometimes even 95 per cent) of the build cost. That means for a $400k house you might need as little as $20-80k (I’m simplifying here but stay with me). For a $150k relocatable house the bank will not lend you anything until the house is on the land, plugged in and ready to go (with a Compliance Certificate).
So why are the banks so reluctant? Because the house isn’t of any value to the bank until it is proven to be compliant. It could have broken on the truck while being relocated or it could have shoddy wiring from 1920 when it was last renovated.
So for the $150k relocatable house, you will need $150k cash. By this time, the pro-relos will be screaming at their monitors and saying that the resulting mortgage is much less and, of course, yes, you’re correct (so hang up your pitch forks and delete the angry comments).
However, for the majority of people who call me, getting the deposit together is the main hurdle they are facing. That’s why they’ve gone in search of the super cheap housing in the first place—not because they are trying to minimise their total mortgage. So, without a very healthy deposit, you’re just not going to get the bank’s support for that relocated house.
So, here is the lesson to take away: Houses, like wine and life-partners, are actually worse for you when they’re unbelievably cheap.
Rupert Gough is an Authorised Financial Adviser with Velocity Financial. No investment decision should be taken based on the information in this blog alone. A disclosure statement is available free of charge upon request.