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Could KiwiBuild home loans be at risk?

Banks could pull the plug on borrowers with pre-approvals for KiwiBuild homes, leaving them vulnerable to financial ruin, an adviser has warned.

Tuesday, November 3rd 2020, 5:34AM

Hamish Patel, of Mortgages Online, fears borrowers who have received pre-approvals for KiwiBuild homes could be at risk.

He has spoken to would-be KiwiBuild homeowners who are unaware their pre-approvals could technically run out, or be taken away.

People are signing up for developments that are a year to two years away from completion, leaving them in a high-risk situation. 

"Even relying on a one year approval is risky," Patel says. "If you lost your job in eight months, six out of ten times, a bank could pull the plug, and your KiwiSaver is on the line."

"When you look at these contracts, it can take developers more than a year to deliver," Patel said. "A lot of homes are being bought off-plan, and while they seem safe because of the KiwiBuild name, they might not be."

"We know that you can't get pre-approvals that last for longer than 12 months," he adds. "Technically, pre-approvals expire after about 3-6 months."

Patel is concerned that lenders could pull the plug on young KiwiBuild home buyers in the wake of Covid-19, leaving buyers vulnerable to financial ruin.

He said this was an "issue that could rear its ugly head", if banks decide to row back on lending to first home buyers and new-build developments, or if borrowers lose their jobs in the economic downturn.

"If someone loses their job in six months, the bank could say 'sorry, but we can't continue on this development, the approval is pulled and you'll have to settle on your own'."

According to Patel, KiwiBuild buyers could be left with the costs for their property and forced to sell. If they sell below the initial asking price, they would be made to pay the difference to developers, he said. 

Patel is concerned there could be significant risks in the financial system. 

"The homes are selling like hot cakes with a 5%-10% deposit. But these are the last people to have options if they can't renew their pre-approvals."

He is concerned a sharp economic downturn could make banks reduce lending appetite, as in the GFC, "when they changed deposit requirements from 10% to 20% overnight". 

Patel calls on advisers to talk to their clients about the risks of diving into development projects during the current crisis. 

"Clients need to know what they are signing up for," he said.

Tags: Covid-19 KiwiBuild Lending

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 2.55 2.69 2.79
ANZ 4.44 3.09 3.25 3.39
ANZ Special - 2.49 2.69 2.79
ASB Bank 4.45 2.49 2.59 2.65
Bluestone 3.49 3.49 3.49 3.49
BNZ - Classic - 2.49 2.69 2.79
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
BNZ - Std, FlyBuys 4.55 3.09 3.29 3.39
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
Lender Flt 1yr 2yr 3yr
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.45 - - -
Credit Union Baywide 5.65 3.95 3.85 -
Credit Union South 5.65 3.95 3.85 -
First Credit Union Special 5.85 2.95 3.45 -
Heartland 3.95 2.89 2.97 3.39
Heartland Bank - Online 2.50 1.99 2.35 2.45
Heretaunga Building Society 4.99 3.50 3.40 -
HSBC Premier 4.49 2.25 2.35 2.65
HSBC Premier LVR > 80% - - - -
Lender Flt 1yr 2yr 3yr
HSBC Special - - - -
ICBC 3.69 2.45 ▼2.45 ▼2.65
Kainga Ora 4.43 2.93 3.07 3.24
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.40 3.30 3.50 3.50
Kiwibank - Offset 3.40 - - -
Kiwibank Special 3.40 2.55 2.65 2.65
Liberty 5.69 - - -
Nelson Building Society 4.95 3.45 3.49 -
Pepper Essential 4.79 - - -
Resimac 3.39 3.35 2.99 3.35
Lender Flt 1yr 2yr 3yr
SBS Bank 4.54 2.99 3.15 3.25
SBS Bank Special - 2.49 2.65 2.75
The Co-operative Bank - First Home Special - - - -
The Co-operative Bank - Owner Occ 4.40 2.49 2.69 2.79
The Co-operative Bank - Standard 4.40 2.99 3.19 3.29
TSB Bank 5.34 3.29 3.29 3.59
TSB Special 4.54 2.49 2.49 2.79
Wairarapa Building Society 4.99 3.55 3.49 -
Westpac 4.59 3.09 3.29 3.39
Westpac - Offset 4.59 - - -
Westpac Special - 2.49 2.69 2.79
Median 4.55 2.94 3.07 2.80

Last updated: 23 November 2020 12:23pm

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