On Friday just past, all states and territories finally signed on to the national HomeBuilder scheme. Tasmania was the first state to pass the legislation however this makes no difference to the banks.
The majority of the banks were holding off until all states had passed the legislation before they release their policies and procedures for the schemes.
Why is this concerning you may ask?
Firstly, we’re already 1 month into the scheme and people are buying land for the sole reason that they may qualify for the grant. We like to see our customers have all their ducks in a row before they make commitments they can’t back out of.
The second concern is that borrowers are looking to use this scheme as a deposit to help with the build. Unfortunately this generally can’t be the case (at this stage at least). The majority of builders out there need to have a 3% deposit paid prior to the build starting, but the scheme/grant will not be issued until at least the slab stage (federal grant may be on completion of property – yet to be confirmed). Therefore, you still need to have enough funds to cover the block deposit, the build deposit and everything up to slab stage (including plans, soil testing and potentially Lenders Mortgage Insurance).
What does all this mean in dollar figures?
Let’s break it down on a $150,000 block purchase and a $260,000 Build – Total price $410,000:
Block Deposit $12,000 (most likely case scenario deposit of 8%)
Stamp Duty $4,185
Solicitor Costs $1500
Sundry expenses $1,000
Total Required for the block $18,685
Let’s add the build cost:
Plans/Soil test costs $4,000
Deposit to builder $7,800
Total cost to start building is $30,485. Remember this is money you must have to start building.
In addition, if there’s a shortfall between LVRs (loan value ratio) and the loan amount then you’ll have to cover this as well. In the above scenario that’s another $13,000 that you need to find if you can’t sign before the 31st December 2020 and have a builder start within 3 months.
NOTE: The $13,000 may be able to be covered by the scheme if bank policies allow it. We’re yet to see guidance on that. Some of the above money can come in the form of a gift or even sale proceeds from items but in most cases you still need 5% genuine savings.
The above figures are estimates only and should be taken as general advice only. If you would like to discuss your individual scenario speak to a professional before signing on the dotted line.