Check and balances on construction lending

During the last few months, we’ve seen a significant increase in applications for construction lending. After nearly 25 years we’ve already provided lending on hundreds, if not thousands, of projects around the country – and that number is only going up.

We’ve now developed strong ways to keep track of these projects and ensure they are progressing to plan. There’s plenty of media coverage about the huge number of houses being built in New Zealand and the potential supply shortages we face. We’re frequently hearing this from the developers and builders we work with as well.

It’s one of the reasons we only lend with conservative LVR limits. We only lend up to 65% of the completed value of a project. This gives us a buffer if things change during construction, and we always have contingencies in place in case costs increase mid-build.

The vast majority of our loan applications come through advisors and developers we’ve worked with before. It creates something that only time can achieve – trust. However, we still apply rigorous checks to make sure our developers and builders don’t have supply or personnel issues related to each specific project.

And even when they pass all these tests, we still split lending across multiple progress payments. This ensures we are only giving money as developments progress.

We have an active hand in all our construction projects by physically visiting sites, or getting photos and videos demonstrating progress. We want to know where our money and our investors’ money is going, and make sure developers are keeping pace with expectations and budget.

Then, after construction is complete homeowners generally move their mortgage to a major bank or sell up, and we move on to funding and keeping track of yet another construction project across New Zealand.