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New-build buyer risks grow

Developers are extending timelines for new-build homes due to construction delays, leading to increased risks for borrowers.

Friday, September 10th 2021, 7:36AM 1 Comment

High demand, a lack of building materials, rising costs, and a Covid-19 related labour shortage have led to severe delays in completing new build construction across the country, and developers have begun to push back timelines for completion on new homes.

According to advisers, many developers are offering new homes on two year timelines, with sunset clauses of between 18-24 months commonplace across New Zealand.

With build completions pushed further out, advisers have warned that borrowers are taking on greater risks by signing up for a new home.

Hamish Patel of Mortgages Online said clients had begun to buy homes off-plan on two year timelines, with developers only willing to agree 18 month to two year sunset clauses in many cases.

He warned that the longer timelines would "start to become a riskier proposition for the market".

"It seems the longer timelines indicate developers are selling more of the pipeline. If costs are to increase, how will those fixed prices fare? I wonder if we will see more developers starting to renege on the prices, and wanting to renegotiate fixed prices 12 months from now."

The warning comes amid reports of escalation clauses appearing on new build contracts, allowing developers to heap extra costs on top of original contracts. 

Escalation clauses are not viewed favourably by the banks, which prefer to lend against fixed price builds. They typically demand higher deposits from buyers on non-fixed price deals.

Reports this week suggest new build buyers have been hit with additional costs of up to $65,000 on "fixed price" deals, leading to a greater number of disputes.

Tags: construction developers new build lending

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Comments from our readers

On 13 September 2021 at 9:35 am Amused said:
There once was a mortgage broker based in Grey Lynn

Who was very quick nowadays with the gin

Because he was sick & tired of delays with these bloody turn-key farces

Having to extend finance approvals yet again!

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Full Rates Table | Compare Rates

Lender Flt 1yr 2yr 3yr
AIA 4.55 2.85 3.25 3.55
ANZ 4.44 3.20 3.59 4.00
ANZ Blueprint to Build 1.68 - - -
ANZ Special - 2.60 2.99 3.40
ASB Back My Build 1.79 - - -
ASB Bank 4.45 2.85 3.25 3.55
Basecorp Finance 5.49 - - -
Bluestone 3.49 3.34 2.99 3.34
BNZ - Classic - ▲2.85 ▲3.25 ▲3.55
BNZ - Mortgage One 5.15 - - -
BNZ - Rapid Repay 4.60 - - -
Lender Flt 1yr 2yr 3yr
BNZ - Std, FlyBuys 4.55 ▲3.45 ▲3.85 ▲4.15
BNZ - TotalMoney 4.55 - - -
CFML Loans 4.95 - - -
China Construction Bank 4.49 4.70 4.80 4.95
China Construction Bank Special - 2.65 2.65 2.80
Credit Union Auckland 5.95 - - -
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 Bank - Online 2.25 1.85 2.35 2.65
Heretaunga Building Society 4.99 3.80 3.90 -
Lender Flt 1yr 2yr 3yr
HSBC Premier 4.49 2.19 2.45 2.69
HSBC Premier LVR > 80% - - - -
HSBC Special - 2.25 - -
ICBC 3.69 2.35 2.75 3.05
Kainga Ora 4.43 2.88 3.28 3.59
Kainga Ora - First Home Buyer Special - 2.25 - -
Kiwibank 3.75 ▲3.80 ▲4.00 4.34
Kiwibank - Offset 3.75 - - -
Kiwibank Special 3.75 ▲2.95 ▲3.15 3.49
Liberty 5.69 - - -
Nelson Building Society 4.95 2.99 3.24 -
Lender Flt 1yr 2yr 3yr
Pepper Essential 4.79 - - -
Resimac 3.39 2.98 2.79 3.29
SBS Bank 4.54 2.99 3.39 3.59
SBS Bank Special - 2.49 2.89 3.09
Select Home Loans 3.49 3.34 2.99 3.34
The Co-operative Bank - First Home Special - ▲2.65 - -
The Co-operative Bank - Owner Occ 4.40 ▲2.85 ▲3.25 ▲3.49
The Co-operative Bank - Standard 4.40 ▲3.35 ▲3.75 ▲3.99
TSB Bank 5.34 3.35 3.75 4.05
TSB Special 4.54 2.55 2.95 3.25
Wairarapa Building Society 4.99 3.55 3.49 -
Lender Flt 1yr 2yr 3yr
Westpac 4.59 ▲3.45 ▲3.85 4.09
Westpac - Offset 4.59 - - -
Westpac Special - ▲2.85 ▲3.25 3.49
Median 4.54 2.95 3.25 3.49

Last updated: 23 September 2021 8:11am

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