In the last three to four months there has been a swing towards building for oneself or buying second hand and renovating or altering to achieve an improved home, says Rob Lawrence, national manager of Rawson Finance bond originator.
“Building for yourself at the moment is almost always more expensive than buying a second hand home of the same size, but it has the huge benefit you get exactly the home you want, designed and finished to meet your needs.”
Most owner builders do rely on bank finance, and banks are still prepared to advance up to 80% bonds for this type of enterprise, provided that the loan applicant qualifies and goes about the request in the approved way.
This involves buying a plot, designing and building a house or buying into a ‘plot and plan’ system where the house is designed as part of the development.
In the next steps, says Lawrence, it is absolutely essential that the plans should be complete and have received council approval. The banks will check on this and will also want to approve the plans.
The next preliminary step is to get a written, signed quote from one or more builders – with a programme attached. This, too, the banks will insist on seeing before they will advance loans.
The builder must have a good track record and be registered with the National Home Builders Registration Council (NHBRC), and on completion the building must have an NHBRC certificate. If the building is not registered with the NHBRC, the banks cannot by law advance any funds and for five years no bank can bond the property if there is a resale.
The National House Builders Registration Council is the state approved body responsible for checking the quality of the building work, for insisting on improvements, where necessary and for coming to the rescue of clients if a builder goes into liquidation or absconds.
During the course of the building operation the builder will ‘draw down’ on the loan as the work progresses, usually four times before the building is completed. The bank’s valuers will visit the site when each draw is requested and inspect the work done. If they are satisfied with progress and standards, they will authorise the ‘draw’. This gives the bank’s client some protection against poor workmanship and is therefore to his advantage.
“The bank’s valuers will always work on the ‘safe retention principal’ to ensure there is enough left in the kitty to complete the building. For this reason it is important to have a builder who has resources and/or a strong cash flow to bide him over the times when his input expenses are higher than the bank’s reimbursements – which often happens.”
Finally, DIY clients should try to visit the sites every day. Builders perform better when they know they are under constant surveillance – and clients should see to it that they have at least 10% more cash available than the quote has specified, says Lawrence.
“It is almost impossible to build a home exactly to budget. There will be unforeseen problems, changes and extras for which the builder is entitled to claim – so the client must have some reserves to draw on.
“All this advice applies equally to renovations undertaken by home owners. In renovations properties are bought, but the amount retained for the renovation will be paid by the bank as the renovation progresses, as in a conventional building loan.”
