Mortgages
4 min read
You’ve signed the dotted line on a brand-new property. It’s not built yet, but it’s a turnkey and the developer will finish building it in 15-18 months.
Plenty of time to get your ducks in a row, right? But, here’s the thing: you need to think about how to get the mortgage set up way before the building is done.
This is one of the biggest risks when you buy a property off the plans.
Here at Opes Mortgages we specialise in helping property investors buy New Builds off the plans.
We do this hundreds of times a year, and through that experience, we’ve learned the 3 things you can do to protect yourself and get the mortgage sorted.
So in this article, you’ll learn what those 3 protections are, including how to get a mortgage for a property that hasn’t been built yet.
If you’ve never bought a New Build before, you might be wondering: “What’s the issue?”
Here’s the crux of it – when you sign up to buy a property, you need to check if you can get the mortgage to pay for it.
If a bank will lend you the money they’ll give you a “pre-approval.” That means you can go and buy the property you want (subject to a few conditions).
But that pre-approval is usually only valid for 6–12 months.
The tricky part? You usually commit to buying the property (go unconditional) before the property is built.
That means you’re legally committed to buy, but what happens if the property takes longer than 12 months to build?
You’re then committing to buy a property … without having a bank approval locked in.
That might not usually be an issue, but what if the bank changes it’s lending criteria, or you lose an income?
Now the bank says, “Sorry, we won’t lend to you anymore.”
But you’re still legally obligated to buy the property, and if you can’t get the mortgage … that’s the nightmare scenario.
Here are the three ways we manage that gap so you don’t get caught out.
The first thing you can do is check if we can get you a longer approval.
Some banks offer longer-than-standard approvals – up to 12 or even 24 months in specific cases.
So your Opes Mortgages adviser will try to match you with the longest approval window available, although it does depend on how long it will take for your property to be built.
You won’t need a 24-month approval if your property will be completed in 3 months.
If Plan A doesn’t work – and the bank won’t offer a long enough approval – you can play it smart with timing.
Let’s say your build will take 15 months, but the longest pre-approval you can get is 12 months.
We can do a “soft” check today (to make sure you would be approved) then apply for a pre-approval in 3 months.
That way, your 12-month pre-approval will cover you right through to settlement.
This lowers the risk of reapplying. Rather than applying for a mortgage in 12 months, do it in 3 months time.
Because there’s far less chance of banks changing their criteria in 3 months than 12 months.
Not zero risk – but less risk.
This leapfrogging strategy keeps your finance valid without leaving it until the last minute when something might go wrong.
This one’s the nerdy one, but also one of the most effective: a pre-allocated title.
It works by getting your mortgage fully locked in before your property is built.
To get your mortgage “fully locked in”, it needs to be ‘documented’. That means you’ve signed the mortgage documents, you’re committed to taking the money from the bank, and they’re committed to giving it to you.
Neither of you can pull out.
This is an ideal situation because you and the bank have a lot of certainty. But you can’t document a loan until you have the title (the legal street address).
And you usually don’t get that until the property is finished.
But some developers now use pre-allocated titles. That means the legal street address is issued before the property is built.
And if that happens, some banks will allow your mortgage to be fully documented – even before the property is finished.
Once a loan is documented, you won’t have to reapply, as long as you draw it down within the set time frame.
At this point, you haven’t locked in your interest rate yet, but your loan approval is now unconditional.
This gives investors more long-term certainty – and peace of mind.
It only works in certain situations – usually with standalone houses – but when it does, it’s a powerful tool.
Short answer: not really.
Most generalist mortgage brokers don’t deal with off-the-plan builds every day, so they might not know how to front-foot these risks.
For example, most mortgage brokers wouldn’t routinely ask for a title upfront – that usually happens much closer to settlement.
Here at Opes Mortgages we specialise in working with property investors. New Build, off-the-plans investment properties? That’s our bread and butter.
Because we work with investors day in, day out we’ve learned how to mitigate the risks – not just react to them.
So if you are looking for a mortgage adviser to help you with a New Build property, you might consider Opes Mortgages.
Senior Financial Adviser at Opes Partners. Property investor with diverse portfolio throughout New Zealand.
Kathy Faulkner is a Financial Adviser providing 5-star review service to 100s of Kiwi investors. She is a property investor herself and has a diverse property portfolio throughout New Zealand. Her financial advice career started decades ago in South Africa and she knows what it is like to start from the beginning and build wealth through careful investments and hard work.
