With the explosion of new house and apartment building projects, we are getting a lot of inquiries about mortgages with settlement a long way into the future. This is called buying ‘Off Plan’. Here’s a guide as to what to do and what to look for in a suitable mortgage product and also some of the differences between lenders.
First thing is to get a pre-approval based on your financial circumstances now, plus advise the lender of any changes that you know of in the coming months. New addition to the family, change of job and increase in debt are perhaps the most important. What deposit do you have now and what will be possible when it comes to settlement.
Many of the Banks will offer a pre-approval that’s only valid for 60 days – not very helpful if your home isn’t ready for 18 months!
Fortunately there are a couple of Banks who recognize this and will offer a pre-approval valid initially for 60 days and then hold it as long as the build is completed within 12 months. However it is important to be aware that in the ‘small print’, if your circumstances materially change in the build period, you may find the Bank will change the offer.
An important difference is how the lender views the purchase price and end valuation.
Some lenders will only lend on the purchase price today and not take into account the final value. This is really important, as the final loan to value may fall significantly. This means a greater choice of final lenders and if under 80% loan to value, a much better deal in terms of rate.
Other lenders will use the final value, as long as the settlement date is over 6 months from the initial Sale & Purchase Agreement. With the rise in values for Auckland not expected to slow, an ‘off plan’ purchase of say $450,000 today could well be over $500,000 once finished in a years time. Using the final value could make a huge difference in whats available at that time in terms of mortgage structure.
Buying ‘Off Plan’ can be exciting but also a bit daunting!
Give Jeff Royle a call on 0800 LENDER (536337) for expert Mortgage Advice and a bit of guidance as to the possible pitfalls, and how to avoid them