Impact of current economic situation on applying for PPOR construction loan

Discussion in 'The Buying & Selling Process' started by oldmanwalking, 12th Mar, 2020.

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  1. oldmanwalking

    oldmanwalking Member

    Joined:
    5th Mar, 2018
    Posts:
    8
    Location:
    Sydney
    Hi all,
    We are a DINK couple in a professional secure job in the health sector.
    We bought a land in Sydney NorWest which just settled and had good bank valuation. Our land loan was approved within 4 working days.

    Now we started to get building quotes/ requesting tender. We have preapproval for 3 months (3 weeks gone).


    Our initial understanding was that we will get all the fixed price building contract signed and get conditional bank approval (condition is to get Council approval). Our broker said when we submit fixed price contract, bank will do a valuation of the building and give us the loan.


    My questions;

    1. In current economic status, upcoming recession etc, the chances are that our building valuation may come lower than the contract price if there is a significant recession at that time. What happens in those situations?

    2. When bank does construction loan, do they do valuation of the building part only (as the land was already valued at the time of land loan approval)
    Or
    Do they carry out a new land+build valuation as a new home? In this case, chances are: land valuation may come low as well if there is a recession

    -What are the worse case scenarios if this happens in 2-4 months time?
    -Those who have seen GFC in the past? What is it impact couples in our situation who wanted to built a house!


    -looking at the uncertain situation, would it be safe to just postpone building for a year and continue paying land loan repayments for another 12 months? What will be a better plan for this economic situation?
     
  2. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

    Joined:
    18th Jun, 2015
    Posts:
    23,319
    Location:
    Sydney
    The impacts on lenders is unknown. All timeframes may be extended or delayed. Staff may be isolated and unable to work. Contractors who do vals etc too. Builders and supply will be impacted too but it may be over by that time and they likely wont start on site until all are available and able to work. Even council approvals will be seriously delayed. Given its bauko they arent that great to start with

    Patience is rule 1 for any construction project. Expect delays. You may find this is a 3-6 week delay. Thats no reason to stop.