(For information on ANZ's Blueprint to Build scheme, check out this blog)
The team at My Mortgage are receiving heaps of questions around the recently announced Back My Build variable rate that ASB and AIA/Sovereign are offering. We have already arranged Back My Build home loans for clients and have some helpful information below to help you understand whether you are eligible and should take advantage of this product.
Back My Build is a new product offered exclusively by ASB and AIA/Sovereign which offers a super low 1.79% variable home loan rate for new builds in an effort to stimulate the appetite for people buying or building new homes.
So let's dive into some of the commonly asked questions!
How can they offer a rate this low?
The Reserve Bank of New Zealand recently introduced the Funding for Lending Programme which allows eligible banks to borrow cheap cash directly from the RBNZ at the Official Cash Rate. What this means is that the interest rate you pay will be determined by OCR changes.
What happens if the rate goes up?
We are getting asked this very often! If the Back My Build variable rate goes up beyond what we can fix the lending for, then we will stay in close contact with you and look to fix the rate. For example, the 1 year rate as of June 2021 is 2.19% - if the variable rate rose beyond this, we would consider fixing your lending. This special floating rate is available to you for up to 3 years from the date of drawdown or 30 November 2025, whichever comes first.
Can this be used exclusively to purchase land?
No. Back My Build cannot be used exclusively to purchase land. However, you can purchase land with a facility such as a revolving credit or floating rate and once conditions are met for the construction of the home (i.e. fixed price contract, builders risk insurance, plans, specs, consents etc) you can refinance to Back My Build upon construction commencing.
Can I buy a house & land package with Back My Build?
Yes. House & Land packages qualify so as long as you meet lending criteria you'll be eligible for this too.
Can I buy a rental with Back My Build?
Yes. You can build a house you intend to rent out. It is not available for commercial builds or developers. Note that as the exemption to the LVR restrictions, and the requirement for 40% deposit, does not apply to new builds you can still build a rental with a 20% deposit. Policy can vary slightly with regards to affordability so check with us if you'd like to build a rental and we can provide some advice around what's best for your situation.
What if the house we want to buy is brand new?
Yes. You can use Back My Build to buy spec homes (that no one has occupied yet) provided that the property is purchased from the developer within 6 months of the construction being completed (date that Code of Compliance Certificate issued).
Can I use it to renovate my house?
No. All renovations, no matter the size of the renovation, are excluded.
Does a low equity margin apply to Back My Build?
Yes. LEM's are the slightly higher margins charged when you have less than 20% deposit. 0.75% is charged with an LVR of 85% - 90% and 0.25% is charged with an LVR of 80-85%. These LEM’s are applied to the Back My Build rate but this would still be cheaper than the standard rate at this point in time! For example, a low equity margin of 0.75% added to your 1.79% Back My Build rate would be 2.54% versus the 2.94% you would get on the current lowest 12 month fixed rate of 2.19%.
Can I get cash back?
The short answer is no. There is a $2000 cash contribution being offered if you can prove you intend to build a 6 Homestar rated home (or higher). There is a fee to have your build assessed by the NZ Green Building Council assessor so this is worth taking into account.
When considering cash back versus a lower interest rate it is worth thinking about what the better interest rate will save you over the long term, for example:
$400K @ 1.79% = $7,160 interest p/a
$400K @ 2.19% = $8,760 interest p/a
This is $1600 / year therefore savings over 3 years equate to $4800.
I already own land but have a loan with another bank, what should I do?
The best course of action is to get in touch with us to discuss your individual circumstances and we can assess whether Back My Build is the right fit for you. If you have an existing loan approval with another bank we will be in touch to see if that is still the right fit for you. In some cases, small variations in policy around affordability may mean another lender is still the best fit.
Back My Build is an excellent new product which is already assisting a lot of borrowers into new homes. There are a few things to consider here so make sure you get in touch with the team at My Mortgage to see what we can do for you.
Adam, Greg, Claire and Amber can discuss your situation and ensure we consider all factors when making a plan for your build. Fill out this form for us with some detail around what you're looking to achieve, and we'll catch up and have a chat to make a plan!