Jan 15, 2021 4:38:00 PM

Building New: House and Land vs. Construction Loan

Topics: Selling, Mortgage Advisers, Home Loan 1

As house prices across New Zealand continue to rise, many first home buyers are turning to new builds as a way of getting onto the property ladder. But financing a new build is a little different to a regular mortgage on an existing property. To help you understand your options when it comes to building a new home, here is an outline of the things to look out for in a house and land turnkey package vs. a construction loan.


1. House and Land (Turnkey Build)

House and land packages are a great option for first home buyers and have become even more popular recently, despite often costing a little more than a standard build using construction finance.

With a turnkey house and land package, home buyers know up front what the total cost of the build will be, and the price includes the cost of the land and the new home. What’s more, the price is usually fixed making it easier to plan your budget.

There is usually only a small deposit required up front – usually 5 – 10 per cent of the cost of the build - with no further payments made until the build is completed. That means you don’t pay any interest on your loan until you settle, a big advantage if you already have a mortgage or rent to pay.

Because the property is newly built, these homes tend to include more energy-efficient fittings and fixtures, and likely won’t need repairs for years to come. They’re also covered by a building warranty offering peace of mind should anything go wrong.

Many house and land packages are built in new subdivisions, creating opportunities for supermarkets, cafes and other businesses in the area. On the flipside, you could end up buying in an area outside of the major suburban areas or further away from the cities with a longer commute into work.

Building new also takes time – typically around 6 months – with consent and council processes taking a month or two, and the build process around 4 months. So if you’re in a hurry to buy, a house and land package probably won’t work for you.

Before choosing a house and land package, it’s important you check what is and isn’t covered in the new build. Sometimes things like pathing, fencing or driveways are excluded.

Remember also to check the builder’s credentials – visit some of the properties they’ve built, check their track record online by reading reviews, and research how much experience they have and how long they’ve been a builder.

2. Construction Finance

This is the more traditional means of building a new home and is often slightly cheaper than a house and land package. However, construction finance may not suit everyone.

Using construction finance to build a new home means buying a section of land to build on and engaging a builder to build your home. With this type of finance, the lender will require a number of additional things in order approve finance, including a Fixed Price Contract from your builder with a drawdown schedule of payments, and a signed sale and purchase agreement for the section of land.

You’ll also need to include any consents and permits from council for the build when applying for construction finance, and your builder will need evidence of Builder’s Risk Insurance to protect against any eventualities or damage that may arise during the build process.

Finally, once the build starts, a Registered Valuation is usually required as the lender will need assurance that the property being built is valued correctly.

Once progress payments begin, so too does your obligation to paying your mortgage, which means you could be paying two mortgages or rent and a mortgage for the duration of your home build. Your lender will factor in these costs when determining affordability. Once the Code of Compliance from Council is issued and the house is ready for you to move in, the final payment is released by the lender.

Building a new home with construction finance offers you more choice over how your home will eventually look. You’ll have more input into the style of your home right from the planning process through to personalizing fixtures and choosing paint colours. Construction finance is a great option if you prefer to be more hands-on in designing the style of your own home.

Build new today

Building a new home is not without its challenges, but getting the right loan can make all the difference. If you’re unsure which loan option – house and land turnkey finance or construction finance – is right for you, get in touch with Mortgage Express.

Our advisers are experienced at helping our customers choose the right finance package. And because we work with a panel of bank and non-bank lenders, can help match you up with the right lender, so you get the best finance available to you.


While all care has been taken in the preparation of this publication, no warranty is given as to the accuracy of the information and no responsibility is taken by Mortgage Express Limited for any errors or omissions. This publication does not constitute personalised financial advice. It may not be relevant to individual circumstances. Nothing in this publication is, or should be taken as, an offer, invitation, or recommendation to buy, sell, or retain any investment in or make any deposit with any person. You should seek professional advice before taking any action in relation to the matters dealt within this publication.

A Disclosure Statement is available on request and free of charge.