Funding your grand design

Amy Hamilton Chadwick
Funding your grand design

Building your dream home is completely different from any other type of construction project. It’s not about the numbers adding up, or about maximising your returns. You’re creating the home you want to live in for the foreseeable future.

Unfortunately, though, grand designs often result in blown-out budgets, arguments with builders, and massive funding shortfalls that can turn your dream home into a nightmare project.

Here are some tips from the experts on how to get the house you want – on time and on budget.

SEE ALSO: House renovations: When to DIY and when to call a pro


Make every single decision in advance

Lack of planning is the fastest way to lose control of your budget, particularly if your budget is defined by ‘this is how much money we have’ rather than ‘this is what the build will actually cost’.

Kiwis tend to have unrealistic estimates of what things are likely to cost, and a ‘he seems honest enough’ attitude to builders, says James White, a registered quantity surveyor and director of Kwanto.

“The currency is time: spend time going to showrooms and deciding on every finish, your flooring, the weatherboards,” says White.

“The more you can decide up front the more fixed the price can be. You need to be fairly disciplined, but with the right planning and advice the project can come in on time and on budget.”


Don’t skimp on expert advice

It all seems so expensive up front: the architect, the consent fees, the geotechnical surveys, the drafting. It’s tempting to try to cut back on those costs, but they’re only a fraction of the potential overrun if you get things wrong in the planning stages and have to change – or worse, redo – what’s already in place.

“It comes back to the consultants. A lot of people will spend money on an architect until the consent process and then say, ‘Sayonara’,” says White.

“All of a sudden you’re pulling out the person making design decisions if there’s a problem and keeping an eye on quality. For $3,000 to $5,000 a month, I think that’s a false economy. You can easily burn through that in terms of variation and misadvice and lack of guidance.”

He’s seen some heartbreaking overruns, including one where architectural draftsman’s estimates were so inaccurate, the owner spent his entire $900,000 budget and only the slab, frames and roof were completed. He couldn’t afford to finish it, he couldn’t move in, and his health was so badly affected he had to take stress leave from work.

“The worst case scenario on a project like this is not only bankruptcy but also a heart attack,” says White.

Pull out quote grand design

Have the right contracts in place

Too few New Zealanders sign up contracts with their builders, setting out pricing and expectations, including every detail right down to the downpipe leading from the bath.

“We had a woman call us at the eleventh hour to help her deal with her builder. Her dream home was nine months late and double the budget; two years later she was still working on taking the builder to court,” says White.

“I went to talk to him and he hid in the bushes – it was like an episode of Fair Go. That project overran by $400,000, and if she’d spent $20,000 to $40,000 on the right consultants up front, even if some of the overrun was legitimate, she could have saved at least $100,000 and two years of stress.”

Fixed-price contracts with clear milestones are why banks will lend up to 90% on turnkey projects.

On bespoke builds, you’re limited to an LVR of around 60%, though you may be able to get that up to 80% with a great contract in place, adds Mark Dunmore, Portfolio Director Mortgages for Westpac: “We like to see a clear contract, accurate prices and we’d recommend you push for fixed quotes to a specific brief.”

Get construction insurance, too, he adds, to protect yourself against natural disasters, construction collapse, theft and other accidental damages.


Don’t keep changing your mind

If there’s one easy way to blow your budget sky-high, it’s making changes once the building process is underway.

At that point, the only changes you should be making are those forced on you by unforeseen problems, says Peter Brooking, Senior Product Manager Mortgages at Westpac.

This is one of the main reasons the bank is likely to limit your lending on a bespoke project: “We know the cost will overrun. We just try to factor this in as part of our lending approval process.”


Keep the bank informed

Lenders never subscribe to the ‘no news is good news’ school of communication. When your dream home is over budget, tell your lender immediately and explain what’s gone wrong. Trying to hide your overspending won’t win you any friends.

“The bank’s going to find out at the next milestone and it could go pear-shaped because you can’t get financing there and then,” says Dunmore. “But if you keep the bank informed, we can work with you on a solution, rather than imposing a solution.”


Make your dream come true

When you’re working on your ‘forever’ home, the usual calculations simply don’t apply.

“I know a family building a flash bespoke house in Dunedin and they’ve got quite expensive taste,” says Brooking. “They’ve found fancy louvres that spin and retract which cost $35,000, but it’s just $5,000 for ordinary louvres.

“There is a worry they’ll overcapitalise, but they’re building this to live the rest of their lives in so they want it to be right. They’re even making sure it’s future proofed, with a lift.

“In those circumstances, who you’re going to sell it to or what the capital gain will be is no longer a consideration.

“Equity is just paper money provided you can afford the repayments.”

Oversee your project manager, keep your finger on the pulse of your build, and get the home you want. As White says, “I don’t think you can overcapitalise the family home. If you’re in a neighbourhood you like and your networks are there, go for your life and have what you want.”

SEE ALSO: House renovations: When to DIY and when to call a pro


Property ambitions?

Westpac has info and tools to help you navigate the house hunting process:

 - Are you covered during your build?

 - Need extra funds for building or renovating?

 - Thinking about building or renovating?

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