Fixed Price Contract
The banks ideally prefer to work with customers who have arranged a fixed price contract with their builder. This gives the banks a great degree of confidence that the build can be completed within the budget of the current approval. A fixed price contract is a great resource for customers as it also gives you confidence via clear progress payments of the cost and stages of your construction.
Each build however is different and there are some prices like Earthworks, site prep etc. that just can’t be guaranteed. The banks take a practical approach here and will consider some Prime Cost Sums (PC Sums) in the contract.
The benefit of having a Fixed price contract is the lenders are generally more comfortable with a smaller deposit required on these type of builds. A general rule of thumb would be 20% deposit required to build with a fixed rice contract, however in cases for some new development and First home buyers a 10% deposit is acceptable.
Owner Managed Builds
Clients who have experience in the building industry often have the ability to do some of the work themselves or have contacts that can provide a significant discount for conducting some of the work in a specific area for them. This is what we call a cost to complete/ owner managed build. This type of construction is possible, however the banks generally prefer a 30-40% deposit to provide the security and flexibility as there are more ‘moving parts’ and a higher risk of cost overrun.
This finance solution however allows the customer to price the build with subcontractors of their choosing, which can provide a discount on your overall build costs. This type of finance is absolutely possible and we can assist with the information required to present this to the lenders for approval.
New development in the market is strongly supported due to the current housing supply shortage. As a result the banks have an exemption to lend more on construction finance and for a new investment build only require a 20% deposit. This is unlike current standard investment purchases that require 40% deposit through mainstream banks. This is an attractive solution for those looking to build an investment property due to the smaller deposit required upfront.
Construction Finance & Discounted Rates
It is important you talked to your adviser about build finance as the banks are being very competitive in securing these applications. Some of the lenders currently are offering significantly discounted floating rates for clients for 2 years and other banks are offering a strong cash contribution up to 2% of the build amount. These deals can change, however it shows the importance of talking to an adviser to make sure you are gaining a competitive deal on your construction finance.