My Backyard Subdivision - Part 5: Banking

Published by Tony Savage on December 14, 2016

Guest Blogger Bob Turnbull, Senior Relationship Manager, ANZ Bank

For many backyard developers, engagement with their bank will be required at some point. It is always best to do this early to understand what requirements the Bank will impose on you either before you start developing or during the development process.

As Tony has mentioned, the rules around development frequently change as a Bank adapts and learns from its own experience in the market. Sometimes conditions can be relaxed; sometimes conditions can be imposed by governing bodies such as the RBNZ. In most cases, the Bank will honour a previous written commitment if such a policy change is made within a reasonable timeframe.

When approaching the Bank to request finance to complete the development, make sure you are confident in your numbers.

Bob Turnbull - Senior Relationships Manager — ANZ

When approaching the Bank to request finance to complete the development, make sure you are confident in your numbers. This could at first be estimates to see if preapproval can be obtained or quotes/invoices to support a formal application. Before committing to any finance, the Bank will want to make sure that the risk is minimised and sufficient profit margins are built in. To know all this, the input costs must be less than the completed value. Banks may be able to provide a pre-approval that will contain a list of requirements that you have to meet. This will have a fixed date for expiry.

At all times, you will need to be able to service the fully drawn loan amount. This means for most people that they will not be able to do more than 1 or 2 buildings at a time and they will also need to keep their day job to ensure the ongoing servicing requirements. There may be scope beyond this if the development is already presold however it may also have other conditions imposed.

The most common loan type would be a construction loan which would be a predetermined maximum loan amount with specific conditions such as only being able to draw down against it in line with the original budget provided. Other options may include a less restrictive Flexible facility which is open to advance funding at any time with the costs and responsibility being controlled by you. This also gives the ability for you to change the project part way through. This option is more commonly available in positions with strong equity (low LVR) and strong servicing.

Other options may include a less restrictive Flexible facility which is open to advance funding at any time with the costs and responsibility being controlled by you.

Bob Turnbull - Senior Relationship Manager — ANZ

All too frequently we see variations being made or additional expenses being incurred. Always know the cost to complete the development and the impact of any change on the end value. Should things change materially, you will need to discuss it with your bank. They may be able to increase your facilities or ask you to inject more capital. The Bank will not be able to provide limitless amounts of money towards a development without a known completion amount/time. It is always best to talk through the project to keep everyone informed.

Related Services

My Backyard Subdivision - Part 4: Building

You should be at the stage now where you can starting the building process. This blog outlines all the essential members of your building team and things that need to be considered for compliance.

Read More

My Backyard Subdivision - Part 3: Titles and Boundaries

In the last article in this series we looked at buying the property that you want to develop. When buying you do not want to fall into one of the property development traps - in this case paying too much for the property because you have not done all your homework

Read More

My Backyard Subdivision - Part 2: Purchasing Your Property

In my last article I talked about why you should first establish the feasibility of your project. This week I discuss the actual purchasing of your property.

Read More

My Backyard Subdivision - Part 1: The Essentials of Feasibility

Before investing in your idea, test if there is actually a market for what you are selling.

Read More

My Backyard Subdivision – Ten easy steps to property development nirvana

Property development is a great way to add value to your property. A backyard subdivision (dividing one property into two or three titles) is straightforward if you know what to do, who should do it, and more importantly in what order things are to be done!

Read More

Check out our lastest Property Law service blog posts

View All Property Law Blog Posts

Do it online

Did you know you can now pay your bill online?

Here's How

Testimonials

Thank you so much for the outstanding support you have provided us over the past few weeks. Your guidance and honesty has given us the confidence to negotiate with assertion!
I have spread the word to everybody and anybody who listens, that you are the lawyer for their jobs! I hope my small token-ability sources you well deserved clients.

Cathryn Baragwanath Trainspotter Cafe

Contact Us

Questions? Comments? Please feel free to get in touch & let us impress you with what we have to offer