https://i.stuff.co.nz/business/13244...-for-new-build

Settlement looming, no finance sorted, for new build

Geraden Cann
05:00, Jul 23 2023

At the end of this month, the del Valle family is due to settle on a new-build property that they cannot afford.

Lea del Valle​ said they stood to lose money from the KiwiSaver accounts of her mother, Cristina,​ and her brother, as well as most of the family’s savings, because they had not been able to get the loan they need to pay the agreed $839,000​ for the Te Atatū South property.

The family is not alone in finding themselves unable to afford a new-build they signed up for months or years before.

Mortgage adviser Hamish Patel said a combination of higher interest rates, home loan test rates, and price falls meant many borrowers were finding themselves rejected by lenders they had expected to offer them home loans.

The del Valle family were in a particularly bad position, because they did not seek finance prior to signing their sale and purchase agreement in October 2021, despite only having a 5% deposit.

Lea del Valle said they realised their mistake, but the family were from Chile, and had never purchased a property in New Zealand before.

“At this point we don’t care about owning property any more, the only thing we want is our deposit back, that was essentially our entire life savings,” del Valle said.

They say they were let down by their professional advisers.

When the family started trying to source finance this year, they were told any mortgage they would qualify for was $300,000 less than they needed.

The family now has a new lawyer, who has advised them the vendor expects titles and code of compliance certificates to be issued by the end of August, before the sunset clause in the contract would allow the del Valle family to withdraw.

If they did not settle, as well as losing their deposit, the developer might also be able to sue the family for the balance of the purchase price if it cannot resell the property to someone else for a similar amount.

The developer has been approached for comment.

Mortgage broker Hamish Patel said there were a number of other people affected by contracts signed in the heat of the market. Issues often arose when banks required a valuation on the completed property, he said.

If the new valuation came in too much lower than the originally agreed price, the borrower might find themselves instantly in negative equity, meaning they owed more money on the home than it was worth – a condition under which banks would usually refuse finance.

One would-be buyer posted online recently saying that they had encountered a problem because their valuation on a new townhouse came in $150,000 below the asking price they had agreed to. “The bank will only loan me less than the amount that I wanted and I would need to fork out the additional money, which I can’t. I have already put in a deposit, what can I do now?”

In some instances, builds had taken longer than expected, and buyer’s finance had expired.

Patel had recently taken on a client in exactly this situation, whose finance had expired a year ago, and the build was only now approaching completion.

“They are effectively just trying to find generous family and friends to find the difference.”

To avoid this, Patel said buyers should ensure their finance agreement continued until after a contract’s sunset clause date.

This meant the buyer could get out of the deal and get their deposit back, if their finance was going to expire.

Home loan rates were also sometimes now locking buyers out. Patel said the rates used by banks to assess a borrower's ability to repay a mortgage had increased from about 6.5% two years ago to 9%.

He said that meant a borrower’s income could have to go up by $30,000 a year before tax to qualify for the same loan.

Back in the crash of 2008 Patel had seen people fail to get finance, and the developer then sell the property at a lower price, after which it would come after the first buyers for the difference.

“So not only has the client lost the deposit because they can’t settle, but now if that $1 million property sells on the market for $850,000, that developer could potentially come after the client for the shortfall.

“A lot of people don’t realise that, you’re not just risking the deposit, you could also be sued.”