Squirrel has revealed a new financial product – Squirrel HomeBuild – that allows homeowners to build a home without paying rent while also making payments against their construction loan.
According to mortgages director Peter Norris, making both payments simultaneously has long been a pain point for customers with a construction loan. HomeBuild is a hybrid of traditional construction loan models, and allows homeowners to capitalise interest into the loan facility and not pay mortgage until the build is completed.
“Our main reason for developing the product was really to fill a gap in the market,” Norris told NZ Adviser.
“We work with a lot of builders and housebuilders up and down the country, and a significant pain point is how they afford to pay both rent and a mortgage during a build. The easiest solution from a bank’s point of view is to have them pay the deposit upfront, and then they pay nothing until completion – but the issue is that the builder then needs to fund the build during the process, so they take on all that risk.”
“Builders prefer clients to do progress payments, which means the client has to pay rent plus interest,” he explained. “Our HomeBuild product is simply a hybrid of the two. We just capitalise the interest so that the client doesn’t need to pay until the build is finished, and the builder gets their cash flow.”
Squirrel currently has a panel of lenders working with the product, and it requires no interim or progress valuations. HomeBuild users pay a $500 loan fee, which goes towards the cost of managing the loan.
Norris says that homebuilding has become more affordable in recent years, leading more and more customers to take it up as an option for getting into their first home.
“Squirrel is a big mortgage broker brand, so we deal with a lot of first home buyers and residential homeowners,” he said. “What used to be around 3-4% of our market is now creeping towards 15%, so that market really is growing hugely. A lot of the construction that’s going on is more affordable and more reasonably priced, so that’s driving people towards that option.”