July 17, 2023 • 18 mins
Whether you're buying a brand-new home, an already established property or building from scratch, your mortgage may differ. Today, Zella Director and Mortgage Broker Cait Bransgrove is back to break it all down. In this in-depth discussion with Jessica Ricci, Cait takes the confusion out of mortgages, so you'll be better informed, no matter which option you're considering.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
The Property Playbook would like to acknowledge the traditional custodians
of the lands of where this podcast is recorded. There
were wondry people of the cooler nations acknowledging the culture,
the history, and the connection to the lens of what
we call home. Let's get into it.
Speaker 2 (00:27):
Hello, and welcome back to The Property Playbook, the podcast
where we take you from A to V of all
things property. My name is Jessica Ricky, and hopefully one
day I can call myself a first home buyer. But
until then I'm chatting to experts all along the way
to help me and you figure out how to get there. Today,
I've got one of my favorite people coming back, hate
(00:47):
Frans Grove from Zala Money Here. She's a mortgage expert,
she's a queen, and she's the person to helping me
get my mortgage. So I thought, who better today to
chat to than you?
Speaker 3 (00:57):
Thank you for having me. How exciting. If everyone one
can just greet me like that from now on.
Speaker 2 (01:02):
That would so I was trying.
Speaker 4 (01:06):
It didn't end. I needed to milk.
Speaker 2 (01:08):
That longer, enjoy it while it's there. But Kate, Today
we're going to chat through the differences in getting mortgages
on different types of properties, because before I started my journey,
I didn't realize that getting a mortgage it's definitely not
a one size fits all. There's actually a difference between
if you're building a new home or you're purchasing an
established home, and I'd never really considered that.
Speaker 3 (01:29):
Yeah, so we have a lot of clients that kind
of come into meetings. They know that they want to
buy a house, but they also don't know whether they
should build that house or they should buy established.
Speaker 4 (01:38):
So this question is very, very common.
Speaker 2 (01:41):
I'm really excited to pick it apart. Can you start
by running me through I guess the primary high level
differences between getting a mortgage for a new build versus
an established properties. We start with new build.
Speaker 4 (01:53):
Let's start with new build.
Speaker 3 (01:54):
I think to cover both off though, the very very
first thing we're going to do is run your borrowing capacity.
So sometimes we get asked if you can borrow more
or if you can borrow less, depending which way you go.
So buying established or building, it's basically the same. So
when we run your borrowing capacity, and for this example,
we'll say that we're looking at building a property. Now,
(02:16):
when you build a property, something that we want to
take into account for you is when that place is
getting built, where are you living, So are you renting,
are you living at home? You know, board free or
rent free? Are you still paying something out of your pocket?
Because from a bank point of view, when we're running
that borrowing calculations, they're actually basing it off the end goal.
(02:37):
So the end goal of the fact that you're in
the home and can you afford the mortgage, then they're
not necessarily right now taking into account any rent that
you're paying whilst the build or anything is going ahead.
Speaker 2 (02:49):
Okay, so if I'm paying five hundred dollars a week
in rent, wow, that seems like a lot. If I'm
paying five hundred dollars a week in rent right now,
the bank would then go, oh, that's five hundred dollars
extra in your budget that you could be paying towards
mortgage direct.
Speaker 3 (03:01):
So they're not taking that out as an expense because
they're looking at can you afford this home once you
move into it, And once you move into it, you're
not going to be paying that rent. So that helps,
I guess in the sense that you're borrowing capacity and
that's great, but we still want to make sure that
you can afford the build whilst it's been built.
Speaker 2 (03:21):
Yeah, okay, So as a broker, for example, you're going, okay,
can you still make the repayments that you need to
make as they come up on top of your rental
payments that you need to make, So they need to
be more of a buffer than potentially what the bank
would consider. Is that right?
Speaker 3 (03:34):
Yeah?
Speaker 4 (03:34):
Pretty much.
Speaker 3 (03:35):
And it's more just I guess that extra step we
like to take because we don't want to just chuck
someone a really large mortgage and it's like, oh great,
the bank says that you can afford this. We want
to make sure that during that whole build process you're
actually still able to live a life and not be
stressing as much as possible, and things like that.
Speaker 2 (03:52):
Something that I heard because I inquired with a build
up very early on in my journey and they spoke
me through something called progress payments. So I think it's
unlike a normal mortgage where you just get your lump
sum that you borrow and then you pay that down.
Can you talk me through how that works?
Speaker 4 (04:09):
Yeah?
Speaker 3 (04:09):
Perfect, So when you are building, and yes, we're taking
into account to make sure you can afford you know,
any rent you might be paying as well as a mortgage.
Speaker 4 (04:17):
The mortgage is.
Speaker 3 (04:18):
Basically split up into five main payments and they are
called progress payments. So let's say you're going to get
the base stage done first for the build, and that's
going to cost fifty thousand dollars for argument's eke we
with the lender.
Speaker 4 (04:32):
The lender will then charge you.
Speaker 3 (04:34):
A repayment on that fifty thousand dollars and it will
be interest only. So the idea behind it is interest only.
You're obviously not actually paying the loan down yet, so
principal and interest is where you pay it down.
Speaker 4 (04:45):
But the idea behind.
Speaker 3 (04:46):
It is because you are probably you know, renting or
paying board or something elsewhere, that you do need to
be able to afford everything at once, and so they
break it up. So they go, okay, here's interest only
repayments with most banks, and here are the stages that
you then have to make a payment on every time
an invoice is paid to your builder until the very
end one, which is then when the whole build is
(05:09):
done and your mortgage is you know, one big mortgage,
and then that's when you start making repayments on everything.
Speaker 2 (05:14):
Ah, so if you're doing your own budget and if
you're figuring it out, that means that you don't have
to be able to pay a whole mortgage and your
rent during that period.
Speaker 4 (05:23):
Of the built. Correct.
Speaker 2 (05:24):
Yeah, correct, That makes it seem a little bit easier
and more approachable. Really, it doesn't act.
Speaker 3 (05:27):
Yes, it's good, and I think originally, to be honest,
like two years ago, we probably weren't really having the
conversations as much because interest rates were so low, and
so it was more affordable for people to be paying,
you know, living and paying rents whilst their build's kind
of going on in the background, or they're paying for
the landlan whatever it might be. Whereas now I think
seeing you know, unfortunately the cost of living and everything
go up so much. It's just that's why it's still
(05:50):
that extra expense paying a mortgage at the same time
as everything else.
Speaker 4 (05:53):
If you can afford that, you're comfortable.
Speaker 2 (05:55):
Amazing, Yeah, incredible. Is there any differences in terms of
the application process for a new build that you wouldn't
really have to consider if you're just patching an established property.
Speaker 3 (06:05):
Yeah, So one of the biggest factors would be the
fact we have to have a build contract. So usually
owner builders different kind of ball game, which we can
maybe talk about another day, but stock standard building contracts say,
you've got your HIA building contract, so you've gone through
you know a well known builder, got your bill contract,
you've got your land contract. When we go to the bank,
we need to get something called an as if complete valuation.
(06:28):
So you've got your bill contract that might be for
four hundred thousand dollars to build this lovely house, and
you've got your land contract. Let's just say it's three
hundred thousand dollars, so seven hundred thousand dollars too is
the purchase price of everything. But we still need to
get evaluation done to ensure that what you're actually building
is what the valuer deems it to actually be worth.
(06:49):
So sometimes we had this happen once or a bill
contract was exactly four hundred thousand dollars, it got valued,
and the valuer valued that build contract as if it
was actually in the worth about three hundred and ten thousand.
Speaker 2 (07:02):
That's a big difference, massive.
Speaker 3 (07:03):
And the reason being we argued it. We went back
and was like, how is this so much less? And
they said they've got extra fittings and items in their
house that were you know, maybe gold plated as an example,
or something a little bit more fancy that the valuer said,
if you were to sell that in the current market,
just because it's got an extra fitting that costs them
a lot more money to install that, they also could
(07:25):
have probably had a similar tap or a similar fitting
that was cheaper, and that's actually worth the price of
what the property is.
Speaker 2 (07:33):
Ah, that's so interesting. We spoke to Belinda bot Solace
from the valuer's house recently and she ran us through
a little bit about how value is kind of assess
those things. But it's crazy to me to think that
you can go, okay, mister or missus builder, I'm handing
you seven hundred thousand dollars because that is what it
is going to cost me to build this house, and
(07:53):
then a valuer can come in and say, oh no,
but the market dictates if someone else were to buy it,
it wouldn't be valued at that because you're like, I
just paid that, Yes, that's what it's worth because I
paid it.
Speaker 4 (08:02):
Yeah, exactly.
Speaker 3 (08:03):
And I think even more so now in the current market,
like valuations have been coming in shorter for people because
they might be getting a Category seven flooring which looks
lovely but is because of all the building supplies costing
so much more. Evaluate then values it and doesn't believe
it to be actually worth what you're paying in this
current market if you were to sell it. And don't
get me wrong, I'm not a value expert or anything
(08:24):
like that at all, but it's definitely something you have
to be mindful of, is that the build and the
land still need to come in at what you want
to pay for them.
Speaker 4 (08:33):
Otherwise if there's.
Speaker 3 (08:34):
That shortfall, that can cause some troubles and what happens
if there is a significant shortfall like that. Yeah, So
main thing is either the client needs to be able
to come up with it. So in some cases that's
not just easy for somebody to whip out, you know.
Speaker 2 (08:48):
Reach into my pocket thousand dollars that would be nice,
or the fact that you know, in cases we do
try and argue it, or we will put the.
Speaker 3 (08:56):
Same bill contract in the same contractor sale for the
land to dif diferent banks. Because unfortunately, and you know
this is a perk I guess of using a broke
I valuation comes in short with one bank will go
to another bank they use a different value panel and
it can sometimes get valued higher and at the price
that we need.
Speaker 2 (09:12):
That's so interesting but really tricky if you're on the
receiving end of it and you're so stressed because you're like,
I've really got to the absolute end of my budget
to get this build done. And I guess that's why
it's so important, as everyone says, to have that buffer
because you just never know what's going to happen.
Speaker 3 (09:26):
Yes, yeah, And the other thing is that if the
valuation comes in short then same thing instead of it
though being worth seven hundred thousand and it's now suddenly
worth only you know, six ' ten or whatever it
might be, then that's where the loan and everything has
to get adjusted for the figures. But they're still obviously yeah,
that shortfall comes into play.
Speaker 2 (09:43):
Wow. All right, So outside of I guess that valuation
perspective and you know, the property being worth what you
paid for it, are there any other key differences when
you're looking to secure that mortgage for a buyer who
is looking to build their first home.
Speaker 3 (09:56):
Yes, So for first home buyers that are looking to
build throughout states in Australia, it's different amounts depending on
the state and where you're from. But if you're building,
you may be eligible for an actual physical cash grant.
So Victoria, for instance, if you build a property or
you're a first home buyer, you get a physical cash
grant of ten thousand dollars, which some people love, like
that's that extra boost they want to bring their mortgage
(10:19):
down or be able to help them get into their
first home. Same with other states that having that cash
grant can really make that difference. If you buy established
in most states, you won't get that physical cash. You
get other benefits like stamp duty exemptions and things like that.
But the only way, for instance, in Victoria again to
get that physical ten thousand dollars is if you buy
a house that's never been lived in, so it could
(10:41):
be built but never lived in, which isn't super common
I guess, so yes, having that extra money sometimes people
really like to have that up their sleeve. The other
big one would be stamp duty. So whether you're a
first home buyer or not, or talk in general terms here,
if you are building, you only have to pay stamp duty.
Speaker 4 (10:58):
On the land Porsche.
Speaker 3 (11:00):
So if the land is valued three hundred thousand dollars,
even if the total thing is valued at seven hundred
including the build, you're paying stamp duty only on that.
Speaker 2 (11:08):
Three hundred k. That's a big difference, huge difference.
Speaker 3 (11:11):
So again, sometimes people find building more suitable because instead
of having to fork out forty five thousand dollars in
stamp duty in some states, they can fork out fifteen
thousand instead. Gets them into the property quicker it, you know. Again,
they don't have to wait, and that ends up suiting them.
If you're a first home buyer and you are eligible
(11:32):
for the stamp duty exemptions. Anyway, it might not make
a difference buying established or building, but it.
Speaker 2 (11:37):
Can make a huge difference regardless. Yeah, okay, really interesting.
Well let's head to a really quick break and when
we come back, I want to talk through some of
the benefits or features I guess of purchasing that established
property instead. Don't go anywhere, guys, Welcome back everybody today.
I've got Cape Brands grow from Selen Money mortgage broker
EXTRAORDINAIY joining me. She'd love it. I love it, And
(12:00):
we're chatting through the differences between securing a mortgage when
you're building a property versus when you're purchasing an established property,
and we're learning that there's quite a few differences that
I really had never considered before. Kate. Before we were
just chatting off the air about a particular scheme which
we have touched on before on the podcast, called the
First Time Guarantee and how that kind of applies in
(12:21):
the two different scenarios. Can you run everyone listening through that?
Speaker 4 (12:24):
Yeah? Perfect.
Speaker 3 (12:25):
So. The First Home Guarantee scheme is for eligible first
home buyers that can purchase with as little as a
five percent deposit. So purchase by six hundred K five
percent is thirty grand plus you're purchasing cost depends on
the state. You can get into your first home potentially
a lot sooner. And the big perk of it is
the fact you have no lenders mortgage insurance added to
(12:47):
your loan and have access to much more competitive interest
rates despite having a smaller deposit. Sounds pretty appealing, very
I actually love this scheme is one of my personal
favorites now.
Speaker 4 (12:57):
The difference though, between.
Speaker 3 (12:58):
Building and using this scheme and buying established and using
the scheme to be eligible for the scheme. When you build,
you have to have a signed build contract and your
piece of land that is ready to title, both within
ninety days of applying for your scheme place. What we
often see is, especially at the moment, titled land.
Speaker 4 (13:20):
It's not super common, no.
Speaker 2 (13:22):
And we have had this conversation because I was looking
at buildings, you know, a while ago, and I was
trying to find any loophole to get to get around
to this, because it is really tricky if you are
trying to get land, particularly newer areas. It just if
you're going to get titled, it's so much more expensive
because they know that people want it to access these schemes,
right yeah.
Speaker 3 (13:43):
Yeah, and it's hot, like people want it because it's
like they can start building if it's titled. So title
basically means it's ready to go, like you can settle
on it, you can own it, you know, you can build,
you can do what you want with it. Whereas if
it's untitled, that's not yours yet, so like yes, you've
probably paid a deposit and you're holding on to it,
but until you've physically settle on that property, then you
know your name isn't on the mortgage, isn't on the title.
Speaker 4 (14:04):
Things like that.
Speaker 3 (14:05):
Now, the hard thing we're seeing with clients is that
is that land isn't titling for a while, so they
might be eligible for the scheme now, But if that
land's not going to title for a year, or it
gets pushed back to a year and a half and
then they need another build contract, or it might have expired.
We're seeing a lot of that because of the delays
in the building industry. And it's not that it's impossible,
like definitely, we have so many clients that are built
(14:27):
through it. It's just about being aware of the risks
because if you've entered into this untitled contract on this
block of land, it's very likely you've entered now into
an unconditional contract. But if it's not going to title
for say a year, then we can't go and get
your finance today. It would be basically irrelevant. We'd be
applying for a pre approval that lasts for three months.
(14:48):
It's going to expire every time we go for it's
added a credit inquiry. We don't want things like that
to be impacting your situation either. Now we're established if
you have that contract of sale, great, let's go for
the scheme place if it fits the eligibility of the
scheme and there's not really that risk as such in
terms of trying to time everything so perfectly.
Speaker 2 (15:10):
Do any of these schemes do they prioritize giving places
to people based on whether their property is being built
to whether it's already established.
Speaker 3 (15:18):
No, there's just thirty five thousand places through the first
time Guarantee scheme First Investressed.
Speaker 2 (15:23):
Yeah, okay, so it sounds like if you are purchasing
an established property that there is in that sense a
little bit less risk involved. Is that the case for
any other aspects of the mortgage as well?
Speaker 3 (15:34):
Yeah, I guess the main one we touched on was
the valuation site. Now, established home valuations still need to
also stack up with what you've paid. So say I'm
going to go to auction and I have my pre
approval to buy for seven hundred thousand dollars, and I
go and I this place was up online for five
point fifty. Just because I've placed an offer on that
for seven hundred thousand, even though it was established, doesn't
(15:55):
mean it's then going to get valued at seven hundred thousand.
So you could still face the short fall issues. But
at the end of the day, it definitely isn't as common.
I think I've seen once in the last seven years
an established contract and valuation coming in short, whereas build
contracts are more common, so not.
Speaker 4 (16:12):
As much risk.
Speaker 3 (16:13):
Definitely, I guess there's still risk, but it's a little
bit more straightforward.
Speaker 4 (16:16):
I guess in that aspect.
Speaker 2 (16:18):
Is the loan process any different if you are purchasing
that established property. Is it any easier because that risk
is lower or is it kind of the same across
the board?
Speaker 4 (16:27):
Yeah?
Speaker 3 (16:28):
I reckon the process for the application is very similar.
Just maybe you need a couple of extra documents with
like a build contract and a land contract, whereas established
you've got just the one contract.
Speaker 4 (16:38):
Things like that. But it's very much for a muchness.
Speaker 2 (16:40):
So okay, good to know. A little bit left field.
But do you as a broker have a preference if
someone comes to you to get a loan, whether they've
got a property that's already established or they want to
get a property that's being built.
Speaker 4 (16:51):
Not at all.
Speaker 3 (16:51):
Like there's definitely risks which we go over for both.
But at the end of the day, if somebody wants
to build a home, we have done so many build
loans because that's that person's goal, and that's amazing you know,
our job is to help support somebody as much as
possible to achieve that goal. Same if it's established. If
that's an established home, whether it's newer home and older home,
whatever it is. If that's your goal, great, let's do
(17:12):
what we can figure out how we can make it
work for you. How much do you need, how much borrowing,
what risks? And basically try and make your dream come true.
Speaker 2 (17:21):
That sounds nice, doesn't it. Hopefully one day Kate will
be making my dream come true. If in the introim
you do want to chat to one of the lovely
ladies at Zala Money, you can head to the link
in the show notes to find them. They're also on
Instagram and Facebook. We love the team and they've helped
so many Property Playbook and Cheese and the Money community
members get into their first homes and I cannot wait
to be one of them.
Speaker 4 (17:41):
Yes, I'm so excited.
Speaker 3 (17:43):
Stay tuned, Jess is going to be purchasing a first home.
We're going to have a little Property Playbook party.
Speaker 2 (17:47):
You've heard it here first folks out of your mouth
and into the universe. But I think that's about all
we've got time for today. Kate, thank you so much
for joining us. It's been an absolute pleasure. We'll have
Kate's socials if you want to keep up with her
all LinkedIn and her notes as well. But before we go,
if you'd enjoyed this episode, guys, we would so appreciate
it if you would leave us a review, let me
(18:07):
know if you're enjoying the season, let us know what
you'd like to hear us tackle next. Because we've been
having a lot of fun. I feel like I've learned
a lot I hope you have as well. If you
want to talk more property, you can come and join
us in the Property Playbook Facebook group or on Instagram
as well. We're Property Playbook Aus and we've got people
sharing tips and tricks and ideas every single day. We're
having so much fun, so definitely come join the community.
(18:28):
We would love to have you. And until next time,
that's all we've got time for. Bye, see later.
The Property Playbook would like to acknowledge the traditional custodians
of the lands of where this podcast is recorded. There
were wondry people of the cooler nations acknowledging the culture,
the history, and the connection to the lens of what
we call home. Let's get into it.
Speaker 2 (00:27):
Hello, and welcome back to The Property Playbook, the podcast
where we take you from A to V of all
things property. My name is Jessica Ricky, and hopefully one
day I can call myself a first home buyer. But
until then I'm chatting to experts all along the way
to help me and you figure out how to get there. Today,
I've got one of my favorite people coming back, hate
(00:47):
Frans Grove from Zala Money Here. She's a mortgage expert,
she's a queen, and she's the person to helping me
get my mortgage. So I thought, who better today to
chat to than you?
Speaker 3 (00:57):
Thank you for having me. How exciting. If everyone one
can just greet me like that from now on.
Speaker 2 (01:02):
That would so I was trying.
Speaker 4 (01:06):
It didn't end. I needed to milk.
Speaker 2 (01:08):
That longer, enjoy it while it's there. But Kate, Today
we're going to chat through the differences in getting mortgages
on different types of properties, because before I started my journey,
I didn't realize that getting a mortgage it's definitely not
a one size fits all. There's actually a difference between
if you're building a new home or you're purchasing an
established home, and I'd never really considered that.
Speaker 3 (01:29):
Yeah, so we have a lot of clients that kind
of come into meetings. They know that they want to
buy a house, but they also don't know whether they
should build that house or they should buy established.
Speaker 4 (01:38):
So this question is very, very common.
Speaker 2 (01:41):
I'm really excited to pick it apart. Can you start
by running me through I guess the primary high level
differences between getting a mortgage for a new build versus
an established properties. We start with new build.
Speaker 4 (01:53):
Let's start with new build.
Speaker 3 (01:54):
I think to cover both off though, the very very
first thing we're going to do is run your borrowing capacity.
So sometimes we get asked if you can borrow more
or if you can borrow less, depending which way you go.
So buying established or building, it's basically the same. So
when we run your borrowing capacity, and for this example,
we'll say that we're looking at building a property. Now,
(02:16):
when you build a property, something that we want to
take into account for you is when that place is
getting built, where are you living, So are you renting,
are you living at home? You know, board free or
rent free? Are you still paying something out of your pocket?
Because from a bank point of view, when we're running
that borrowing calculations, they're actually basing it off the end goal.
(02:37):
So the end goal of the fact that you're in
the home and can you afford the mortgage, then they're
not necessarily right now taking into account any rent that
you're paying whilst the build or anything is going ahead.
Speaker 2 (02:49):
Okay, so if I'm paying five hundred dollars a week
in rent, wow, that seems like a lot. If I'm
paying five hundred dollars a week in rent right now,
the bank would then go, oh, that's five hundred dollars
extra in your budget that you could be paying towards
mortgage direct.
Speaker 3 (03:01):
So they're not taking that out as an expense because
they're looking at can you afford this home once you
move into it, And once you move into it, you're
not going to be paying that rent. So that helps,
I guess in the sense that you're borrowing capacity and
that's great, but we still want to make sure that
you can afford the build whilst it's been built.
Speaker 2 (03:21):
Yeah, okay, So as a broker, for example, you're going, okay,
can you still make the repayments that you need to
make as they come up on top of your rental
payments that you need to make, So they need to
be more of a buffer than potentially what the bank
would consider. Is that right?
Speaker 3 (03:34):
Yeah?
Speaker 4 (03:34):
Pretty much.
Speaker 3 (03:35):
And it's more just I guess that extra step we
like to take because we don't want to just chuck
someone a really large mortgage and it's like, oh great,
the bank says that you can afford this. We want
to make sure that during that whole build process you're
actually still able to live a life and not be
stressing as much as possible, and things like that.
Speaker 2 (03:52):
Something that I heard because I inquired with a build
up very early on in my journey and they spoke
me through something called progress payments. So I think it's
unlike a normal mortgage where you just get your lump
sum that you borrow and then you pay that down.
Can you talk me through how that works?
Speaker 4 (04:09):
Yeah?
Speaker 3 (04:09):
Perfect, So when you are building, and yes, we're taking
into account to make sure you can afford you know,
any rent you might be paying as well as a mortgage.
Speaker 4 (04:17):
The mortgage is.
Speaker 3 (04:18):
Basically split up into five main payments and they are
called progress payments. So let's say you're going to get
the base stage done first for the build, and that's
going to cost fifty thousand dollars for argument's eke we
with the lender.
Speaker 4 (04:32):
The lender will then charge you.
Speaker 3 (04:34):
A repayment on that fifty thousand dollars and it will
be interest only. So the idea behind it is interest only.
You're obviously not actually paying the loan down yet, so
principal and interest is where you pay it down.
Speaker 4 (04:45):
But the idea behind.
Speaker 3 (04:46):
It is because you are probably you know, renting or
paying board or something elsewhere, that you do need to
be able to afford everything at once, and so they
break it up. So they go, okay, here's interest only
repayments with most banks, and here are the stages that
you then have to make a payment on every time
an invoice is paid to your builder until the very
end one, which is then when the whole build is
(05:09):
done and your mortgage is you know, one big mortgage,
and then that's when you start making repayments on everything.
Speaker 2 (05:14):
Ah, so if you're doing your own budget and if
you're figuring it out, that means that you don't have
to be able to pay a whole mortgage and your
rent during that period.
Speaker 4 (05:23):
Of the built. Correct.
Speaker 2 (05:24):
Yeah, correct, That makes it seem a little bit easier
and more approachable. Really, it doesn't act.
Speaker 3 (05:27):
Yes, it's good, and I think originally, to be honest,
like two years ago, we probably weren't really having the
conversations as much because interest rates were so low, and
so it was more affordable for people to be paying,
you know, living and paying rents whilst their build's kind
of going on in the background, or they're paying for
the landlan whatever it might be. Whereas now I think
seeing you know, unfortunately the cost of living and everything
go up so much. It's just that's why it's still
(05:50):
that extra expense paying a mortgage at the same time
as everything else.
Speaker 4 (05:53):
If you can afford that, you're comfortable.
Speaker 2 (05:55):
Amazing, Yeah, incredible. Is there any differences in terms of
the application process for a new build that you wouldn't
really have to consider if you're just patching an established property.
Speaker 3 (06:05):
Yeah, So one of the biggest factors would be the
fact we have to have a build contract. So usually
owner builders different kind of ball game, which we can
maybe talk about another day, but stock standard building contracts say,
you've got your HIA building contract, so you've gone through
you know a well known builder, got your bill contract,
you've got your land contract. When we go to the bank,
we need to get something called an as if complete valuation.
(06:28):
So you've got your bill contract that might be for
four hundred thousand dollars to build this lovely house, and
you've got your land contract. Let's just say it's three
hundred thousand dollars, so seven hundred thousand dollars too is
the purchase price of everything. But we still need to
get evaluation done to ensure that what you're actually building
is what the valuer deems it to actually be worth.
(06:49):
So sometimes we had this happen once or a bill
contract was exactly four hundred thousand dollars, it got valued,
and the valuer valued that build contract as if it
was actually in the worth about three hundred and ten thousand.
Speaker 2 (07:02):
That's a big difference, massive.
Speaker 3 (07:03):
And the reason being we argued it. We went back
and was like, how is this so much less? And
they said they've got extra fittings and items in their
house that were you know, maybe gold plated as an example,
or something a little bit more fancy that the valuer said,
if you were to sell that in the current market,
just because it's got an extra fitting that costs them
a lot more money to install that, they also could
(07:25):
have probably had a similar tap or a similar fitting
that was cheaper, and that's actually worth the price of
what the property is.
Speaker 2 (07:33):
Ah, that's so interesting. We spoke to Belinda bot Solace
from the valuer's house recently and she ran us through
a little bit about how value is kind of assess
those things. But it's crazy to me to think that
you can go, okay, mister or missus builder, I'm handing
you seven hundred thousand dollars because that is what it
is going to cost me to build this house, and
(07:53):
then a valuer can come in and say, oh no,
but the market dictates if someone else were to buy it,
it wouldn't be valued at that because you're like, I
just paid that, Yes, that's what it's worth because I
paid it.
Speaker 4 (08:02):
Yeah, exactly.
Speaker 3 (08:03):
And I think even more so now in the current market,
like valuations have been coming in shorter for people because
they might be getting a Category seven flooring which looks
lovely but is because of all the building supplies costing
so much more. Evaluate then values it and doesn't believe
it to be actually worth what you're paying in this
current market if you were to sell it. And don't
get me wrong, I'm not a value expert or anything
(08:24):
like that at all, but it's definitely something you have
to be mindful of, is that the build and the
land still need to come in at what you want
to pay for them.
Speaker 4 (08:33):
Otherwise if there's.
Speaker 3 (08:34):
That shortfall, that can cause some troubles and what happens
if there is a significant shortfall like that. Yeah, So
main thing is either the client needs to be able
to come up with it. So in some cases that's
not just easy for somebody to whip out, you know.
Speaker 2 (08:48):
Reach into my pocket thousand dollars that would be nice,
or the fact that you know, in cases we do
try and argue it, or we will put the.
Speaker 3 (08:56):
Same bill contract in the same contractor sale for the
land to dif diferent banks. Because unfortunately, and you know
this is a perk I guess of using a broke
I valuation comes in short with one bank will go
to another bank they use a different value panel and
it can sometimes get valued higher and at the price
that we need.
Speaker 2 (09:12):
That's so interesting but really tricky if you're on the
receiving end of it and you're so stressed because you're like,
I've really got to the absolute end of my budget
to get this build done. And I guess that's why
it's so important, as everyone says, to have that buffer
because you just never know what's going to happen.
Speaker 3 (09:26):
Yes, yeah, And the other thing is that if the
valuation comes in short then same thing instead of it
though being worth seven hundred thousand and it's now suddenly
worth only you know, six ' ten or whatever it
might be, then that's where the loan and everything has
to get adjusted for the figures. But they're still obviously yeah,
that shortfall comes into play.
Speaker 2 (09:43):
Wow. All right, So outside of I guess that valuation
perspective and you know, the property being worth what you
paid for it, are there any other key differences when
you're looking to secure that mortgage for a buyer who
is looking to build their first home.
Speaker 3 (09:56):
Yes, So for first home buyers that are looking to
build throughout states in Australia, it's different amounts depending on
the state and where you're from. But if you're building,
you may be eligible for an actual physical cash grant.
So Victoria, for instance, if you build a property or
you're a first home buyer, you get a physical cash
grant of ten thousand dollars, which some people love, like
that's that extra boost they want to bring their mortgage
(10:19):
down or be able to help them get into their
first home. Same with other states that having that cash
grant can really make that difference. If you buy established
in most states, you won't get that physical cash. You
get other benefits like stamp duty exemptions and things like that.
But the only way, for instance, in Victoria again to
get that physical ten thousand dollars is if you buy
a house that's never been lived in, so it could
(10:41):
be built but never lived in, which isn't super common
I guess, so yes, having that extra money sometimes people
really like to have that up their sleeve. The other
big one would be stamp duty. So whether you're a
first home buyer or not, or talk in general terms here,
if you are building, you only have to pay stamp duty.
Speaker 4 (10:58):
On the land Porsche.
Speaker 3 (11:00):
So if the land is valued three hundred thousand dollars,
even if the total thing is valued at seven hundred
including the build, you're paying stamp duty only on that.
Speaker 2 (11:08):
Three hundred k. That's a big difference, huge difference.
Speaker 3 (11:11):
So again, sometimes people find building more suitable because instead
of having to fork out forty five thousand dollars in
stamp duty in some states, they can fork out fifteen
thousand instead. Gets them into the property quicker it, you know. Again,
they don't have to wait, and that ends up suiting them.
If you're a first home buyer and you are eligible
(11:32):
for the stamp duty exemptions. Anyway, it might not make
a difference buying established or building, but it.
Speaker 2 (11:37):
Can make a huge difference regardless. Yeah, okay, really interesting.
Well let's head to a really quick break and when
we come back, I want to talk through some of
the benefits or features I guess of purchasing that established
property instead. Don't go anywhere, guys, Welcome back everybody today.
I've got Cape Brands grow from Selen Money mortgage broker
EXTRAORDINAIY joining me. She'd love it. I love it, And
(12:00):
we're chatting through the differences between securing a mortgage when
you're building a property versus when you're purchasing an established property,
and we're learning that there's quite a few differences that
I really had never considered before. Kate. Before we were
just chatting off the air about a particular scheme which
we have touched on before on the podcast, called the
First Time Guarantee and how that kind of applies in
(12:21):
the two different scenarios. Can you run everyone listening through that?
Speaker 4 (12:24):
Yeah? Perfect.
Speaker 3 (12:25):
So. The First Home Guarantee scheme is for eligible first
home buyers that can purchase with as little as a
five percent deposit. So purchase by six hundred K five
percent is thirty grand plus you're purchasing cost depends on
the state. You can get into your first home potentially
a lot sooner. And the big perk of it is
the fact you have no lenders mortgage insurance added to
(12:47):
your loan and have access to much more competitive interest
rates despite having a smaller deposit. Sounds pretty appealing, very
I actually love this scheme is one of my personal
favorites now.
Speaker 4 (12:57):
The difference though, between.
Speaker 3 (12:58):
Building and using this scheme and buying established and using
the scheme to be eligible for the scheme. When you build,
you have to have a signed build contract and your
piece of land that is ready to title, both within
ninety days of applying for your scheme place. What we
often see is, especially at the moment, titled land.
Speaker 4 (13:20):
It's not super common, no.
Speaker 2 (13:22):
And we have had this conversation because I was looking
at buildings, you know, a while ago, and I was
trying to find any loophole to get to get around
to this, because it is really tricky if you are
trying to get land, particularly newer areas. It just if
you're going to get titled, it's so much more expensive
because they know that people want it to access these schemes,
right yeah.
Speaker 3 (13:43):
Yeah, and it's hot, like people want it because it's
like they can start building if it's titled. So title
basically means it's ready to go, like you can settle
on it, you can own it, you know, you can build,
you can do what you want with it. Whereas if
it's untitled, that's not yours yet, so like yes, you've
probably paid a deposit and you're holding on to it,
but until you've physically settle on that property, then you
know your name isn't on the mortgage, isn't on the title.
Speaker 4 (14:04):
Things like that.
Speaker 3 (14:05):
Now, the hard thing we're seeing with clients is that
is that land isn't titling for a while, so they
might be eligible for the scheme now, But if that
land's not going to title for a year, or it
gets pushed back to a year and a half and
then they need another build contract, or it might have expired.
We're seeing a lot of that because of the delays
in the building industry. And it's not that it's impossible,
like definitely, we have so many clients that are built
(14:27):
through it. It's just about being aware of the risks
because if you've entered into this untitled contract on this
block of land, it's very likely you've entered now into
an unconditional contract. But if it's not going to title
for say a year, then we can't go and get
your finance today. It would be basically irrelevant. We'd be
applying for a pre approval that lasts for three months.
(14:48):
It's going to expire every time we go for it's
added a credit inquiry. We don't want things like that
to be impacting your situation either. Now we're established if
you have that contract of sale, great, let's go for
the scheme place if it fits the eligibility of the
scheme and there's not really that risk as such in
terms of trying to time everything so perfectly.
Speaker 2 (15:10):
Do any of these schemes do they prioritize giving places
to people based on whether their property is being built
to whether it's already established.
Speaker 3 (15:18):
No, there's just thirty five thousand places through the first
time Guarantee scheme First Investressed.
Speaker 2 (15:23):
Yeah, okay, so it sounds like if you are purchasing
an established property that there is in that sense a
little bit less risk involved. Is that the case for
any other aspects of the mortgage as well?
Speaker 3 (15:34):
Yeah, I guess the main one we touched on was
the valuation site. Now, established home valuations still need to
also stack up with what you've paid. So say I'm
going to go to auction and I have my pre
approval to buy for seven hundred thousand dollars, and I
go and I this place was up online for five
point fifty. Just because I've placed an offer on that
for seven hundred thousand, even though it was established, doesn't
(15:55):
mean it's then going to get valued at seven hundred thousand.
So you could still face the short fall issues. But
at the end of the day, it definitely isn't as common.
I think I've seen once in the last seven years
an established contract and valuation coming in short, whereas build
contracts are more common, so not.
Speaker 4 (16:12):
As much risk.
Speaker 3 (16:13):
Definitely, I guess there's still risk, but it's a little
bit more straightforward.
Speaker 4 (16:16):
I guess in that aspect.
Speaker 2 (16:18):
Is the loan process any different if you are purchasing
that established property. Is it any easier because that risk
is lower or is it kind of the same across
the board?
Speaker 4 (16:27):
Yeah?
Speaker 3 (16:28):
I reckon the process for the application is very similar.
Just maybe you need a couple of extra documents with
like a build contract and a land contract, whereas established
you've got just the one contract.
Speaker 4 (16:38):
Things like that. But it's very much for a muchness.
Speaker 2 (16:40):
So okay, good to know. A little bit left field.
But do you as a broker have a preference if
someone comes to you to get a loan, whether they've
got a property that's already established or they want to
get a property that's being built.
Speaker 4 (16:51):
Not at all.
Speaker 3 (16:51):
Like there's definitely risks which we go over for both.
But at the end of the day, if somebody wants
to build a home, we have done so many build
loans because that's that person's goal, and that's amazing you know,
our job is to help support somebody as much as
possible to achieve that goal. Same if it's established. If
that's an established home, whether it's newer home and older home,
whatever it is. If that's your goal, great, let's do
(17:12):
what we can figure out how we can make it
work for you. How much do you need, how much borrowing,
what risks? And basically try and make your dream come true.
Speaker 2 (17:21):
That sounds nice, doesn't it. Hopefully one day Kate will
be making my dream come true. If in the introim
you do want to chat to one of the lovely
ladies at Zala Money, you can head to the link
in the show notes to find them. They're also on
Instagram and Facebook. We love the team and they've helped
so many Property Playbook and Cheese and the Money community
members get into their first homes and I cannot wait
to be one of them.
Speaker 4 (17:41):
Yes, I'm so excited.
Speaker 3 (17:43):
Stay tuned, Jess is going to be purchasing a first home.
We're going to have a little Property Playbook party.
Speaker 2 (17:47):
You've heard it here first folks out of your mouth
and into the universe. But I think that's about all
we've got time for today. Kate, thank you so much
for joining us. It's been an absolute pleasure. We'll have
Kate's socials if you want to keep up with her
all LinkedIn and her notes as well. But before we go,
if you'd enjoyed this episode, guys, we would so appreciate
it if you would leave us a review, let me
(18:07):
know if you're enjoying the season, let us know what
you'd like to hear us tackle next. Because we've been
having a lot of fun. I feel like I've learned
a lot I hope you have as well. If you
want to talk more property, you can come and join
us in the Property Playbook Facebook group or on Instagram
as well. We're Property Playbook Aus and we've got people
sharing tips and tricks and ideas every single day. We're
having so much fun, so definitely come join the community.
(18:28):
We would love to have you. And until next time,
that's all we've got time for. Bye, see later.
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