Know the rules before you build for yourself

In the last three to four months there has, says Rob Lawrence, National Manager of the bond originators, Rawson Finance, been a swing towards building for oneself or buying second hand and renovating or altering to achieve an improved home.

“Building for oneself,” said Lawrence, “at the moment is almost always more expensive than buying a second hand home of the same size – but it has the huge benefit that the client gets exactly the home that he wants, designed and finished to meet his needs.”

Most of those going this independent route, said Lawrence, 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 his request in the approved way.

This, he said, involves, either buying a plot , designing and building a house or buying into a so called ‘plot and plan’ system where the house is pre-designed as part of the development.

In the next steps, said Lawrence, it is absolutely essential not only that the plans should be complete but that they should also have received Council approval. The banks themselves will check on this and will want to approve the plans.

The next preliminary step, said Lawrence, is to get a written, signed quote from one or more builders – with a programme attached. This, too, the bank will insist on seeing before they will advance a loan.

The builder must not only have a good track record, he must also be an NHBRC member and the building must on completion have an NHBRC Certificate. If the building is not registered with the NHBRC, the banks cannot by law advance any moneys and for five years no bank can bond the property if there is a resale. (The National House Builders Registration Council, Lawrence explained, 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 and when a builder is liquidated 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,” said Lawrence, “will always work on the ‘safe retention principal’ to ensure that 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, said Lawrence, the DIY client should try to visit the site every day: builders, he said, perform better when they know that they are under constant surveillance – and the client should see to it that he has at least 10% more cash available than the quote has specified.

“It is,” he said, “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, added Lawrence, applies equally to renovations undertaken by the homeowner. In a renovation the property is purchased but the amount retained for the renovation will be paid by the bank as the renovation progresses, as in a conventional building loan.

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