Is a Prefab Home Your Ticket onto the Property Ladder?

TDMModular (1).jpg

Prefab houses are cheaper, quicker to build and have fewer budget blowouts, but banks haven’t given them much love … until now. Kylie explains…

Imagine owning a patch of land and one day a truck backs up, plonks down your new home and, voila, you’re a homeowner. Although a prefab home can seem like a friendly and easy entry into the property market, your bank most likely has had a different opinion … up until now. 


Prefab houses have been notoriously difficult to fund because there has been no security for the bank to lend against in the beginning. You’ve been required to pay for the dwelling before it was delivered to the site. Historically, this meant that it was out of reach for most first-home buyers—unless parents had enough equity to pay for the dwelling up front against their property.


But there’s a glimpse of sunshine peaking out from behind the dark cloud hanging over the prefab home dream. Westpac have recently completed a successful nine-month pilot in both Albany and Invercargill on a new build product called Prebuilt—a dedicated mortgage product aimed at helping Kiwi’s get into prefabricated homes. They’ve just announced this product and are beginning the process of rolling it out to all of New Zealand.


So, watch this space.


The prefab home market is expected to grow over 200 per cent in the next year. So, with Westpac’s new product on offer, the prefab homes should be a hit with both buyers and builders.


But what exactly is a prefab home?


Prefab homes (prefabricated homes) are built under controlled conditions, usually in a factory, and are transported to their final location by truck.


This method of building provides several benefits above traditional building methods:

·      They can be cheaper and their costs are tightly controlled (so no project blowouts!).

·      The build time is also much quicker than your standard build, with some prefab homes taking just 18 weeks.

·      The overall cost is around 15 per cent less than a standard build.


The prefab home designs have also come a long way in the last few years, with trendy and modern options on offer.


So dream on … and chat to us about the options!


Considering building? Here are your financing options

With our current housing shortage, building your own dream home can look mighty appealing. But what will your bank think and is there any government assistance?


If you are considering building there are several financing options available. We’ll get to these shortly, but firstly a note about LVRs and the HomeStart Grant.


The Reserve Bank LVR rules don’t apply to those building a new home. This exemption applies to both owner-occupied and residential property investors. So this is a great option for those who don’t have the required 40 per cent deposit for an existing property but wish to add to their property investment portfolio.


If you are a first-home buyer and qualify for the Housing NZ HomeStart Grant, then the grant is effectively doubled to $2000 per year of membership in the scheme, of up to $10,000 for five years for each member if you are building.


So, all this considered, here are your financing options (and remember that each bank treats construction loans slightly differently): 


Fixed-Price Contract

Your builder provides a single, fixed price to complete the build. The contract is “all inclusive”. Mortgage repayments need to be paid while the build is being completed, so if you are renting during this process you’ll need to be able to service both your weekly rent and the mounting repayments on the new build. Banks will generally lend between 80 and 90 per cent on the cost of the project.


A Turn-Key Loan (Land and Build Packages)

In this case, the property (land and house) is purchased once completed. A contract is generally entered into before building starts and a deposit paid at this stage. The ownership of the property is transferred from the building developer to you once the house is built.


These can be a little more expensive than the fixed-price contract option, however, there are no mortgage repayments required during the build process. Banks will lend up to 90 per cent of the price of a turn-key project.


Purchasing Land

In the current market, most banks will lend 80 per cent against a piece of land, assuming it is zoned residential and has the services—power, water, sewerage— available. Most banks will only lend 80% if building will commence on the land within 12 months.


Build Yourself

If you are a tradie and are building the home yourself or you are project managing the build, banks will lend between 50 and 80 per cent of the build costs.


There you have it. If you’d like to talk through your dream home with us, we might not be so helpful when it comes to choosing curtain patterns but we can certainly help get the cash so you can order the right curtains.