Progress payment structure

Hi everyone,

I am looking at getting a construction loan -fixed price contract - through ANZ perhaps. If the house has no frames as in it is made of designer besserblock corefilled and reinforced, what would be a acceptable progress payment structure to the bank? Normally there is 5% deposit, 10% slab, 15% frames etc. What would go in this case as there is no frames? Can one use 5% deposit, 15% slab, 15% brick/blockup, 15% roof, 10% fully enclosed, 25% fixing and the last 15% on practical completion? I am trying at the moment to negotiate a contract with my builder and am not too sure how to go about it as the house has no frames. The land loan sits at just below 80% LVR, last val was done in May. Construction will be at 80 or just below 80% LVR as well with the remaining funds being provided by myself. The 20k FHOG will act as a buffer of sorts... What about NAB? Have they lifted their lending restrictions to 80%LVR from 70% LVR to post code 4211?

Thank you all in advace if you can help.

 

the builder will more or less dictate the structure of progress payments.

 

Would pay to check with bank as well as they may have a criteria that needs to be adhered to and may also be able to do an exception if yours is outside this criteria?

 

Not entirely true.

The banks have guidelines on acceptable amounts (as percentages) for each stage. If the contract falls outside of these guidelines then lenders will request that the construction contract be amended or they won't fund it.

I've seen this happen a number of times. The builders have always been very quick and easy to amend the contract, which leads me to suspect the builders are simply trying to get it past the banks to see if they can get more money sooner.

@Bubica42 your percentages look about right, except that the 'roof' and 'fully enclosed stages' would normally be combined and called 'lock up'.

 

Peters right, most of the major builders try it on for a larger lercentage towards the front of the contract than the standard. In fairness this probably reflects their costs better. About 80% of the time lenders and valuers don't pick it up.
I haven't seen a contract without a slab, I'd say as long as it was a fixed price contract and the progress schedule was standard you shouldn't have a problem.

 

This is generally true but progress payments can be negotiable. I asked my builder to vary ours and they agreed.

 

The blocks etc will be the frame, would just be a matter of seeing if lender and builder agree on the costs/release I would assume.

 

That's what I would be happy to find out. If ANZ or NAB would be ok to follow such a progress payment structure. Was hoping that someone in this forum has worked with such or similar situation and interested to see how they went about it...

 

I haven't done a construction loan with ANZ in ages, but I can confirm that NAB wants it within guidelines. I can't imagine the ANZ would be any different.

Any experienced builder is going to be familiar with the general expectations of the banks. As I mentioned I suspect they simply try to see what they can get away with. I've never had a builder have a serious problem with adjusting the schedule to the banks requirements.

 

I have my build contract in front of me, HIA. So FYI for anyone who wants to compare:
Deposit - 5%
Base = 10%
Frame - 15%
Lock-up - 35%
Fixing - 25%
Completion - 10%

I do not have a slab so replaced with "Base".

 

I have mine in front of me too. This is the standard for this builder but can be modified by request.

Deposit 6.5%
Concrete Slab Poured 10%
Brickwork to Plate Height Ground Floor 10%
Brickwork to Plate Height Upper Floor 20%
Roof Cover On 16.5%
Lock Up and Cabinet Fit Out 27%
Practical Completion 10%

 

Yes, thank you all for your response. My builder is not one of the large builders. He is a decent bloke and gave me a very good fixed price contract. I suppose we are trying to make it fit somehow within ANZ's criteria as the land loan is with them, fixed for 3 years since May this year. The problem is that the house is split system hence not a straight forward slab. It has a lower floor as well as a suspended floor on top of part of the lower floor. The question here is what constitutes the slab? As by the time the entire slab is poured, the lower rooms ( a bar and an atrium) of the house will be already bricked/ blocked on and have a "roof" I suppose on top. He is happy to do all the above on the 5% deposit and the 15% slab, however for cashflow purposes he will need 15% after brick/block on, 15% after roof and 10% after windows are fitted hence after the lock up. Is it not reasonable to ask for 60% of costs by the time the house is virtually built? There will still be 25% after the fitting and the last 15% on completion. I read somewhere that banks generally release up to 65% after the enclosed stage.

 

Who is your lender if I may ask? Something like that will work for us quite well. I wonder if ANZ will like something like that...

 

Thank you for posting this. I had exactly the same contract with the same builder when the house was designed with metal frames and brick veneer. Then we found this designer blocks and thought that we will save in frames as well as renderig/ painting part of the house (well the facade will have some feature cladding/ walls that do require some rendering/painting). I mean the frames were some $55k the cheapest quote that the builder could get. Yes, the reinforcing will cost a bit but not anywhere near as much as the frames plus full render plus painting a nearly 500m2 split level house.

 

Yes, I totally agree with you about NAB. I nearly had the loan approved by them before they released the LVR restrictions to certain postcodes. Unfortunately mine falls within the 70%LVR zone, hence NAB is a no go unless they have changed their policy recently. I remember the broker I had at the time asked the builder to modify slightly the base/ frames payments to fall within their guidelines. I was happy to have them modified and contribute the shortfall to the builder myself but I could not deal comfortably with the 70% LVR as well as the shortfall. Then when it turned pear shaped, the broker did a runner on me...

 

Yes, I suppose you guys are right, however paying 60% after the house is up and the roof and windows are on shouldn't be an issue. Thr bank has a house for which has only really released 40% of the cost of construction as the first 20% are my contribution. Hence I pay the builders deposit as well as the slab bit. The bank only kicks in after the blocks are up for the upper floor by releasing 15% if the contract price, then pays after the roof, after fitout and on practical completion... Would they see it as a problem?

 

Yes, that would be the wise thing to do, however not entirelly sure the front reception staff will know a bank's lending policy entirely. And then again I have heard of deviations from the lending criteria slightly....

 

The NAB and inner city postcodes can be a pain in the neck, but it is what it is. If anything more lenders have become more restrictive on this, it hasn't improved.

From what you've stated the 70% LVR and 'shortfall' really just means you've got to put in an extra 10% of the property value. They're the same thing, not two different things.

The obvious solution if you can't contribute the extra 10% would be to use a lender that isn't as picky about the location. The CBA usually ends up as the default alternative for this sort of thing. Unless there's a specific reason (serviceability perhaps), this is an inconvenience, not the end of the world.

 

Not exactly right about the shortfall... I can cover the small percentages at each stage that the builder wants and the bank does not agree on them. However I could not coverthem as well as the 10% NAB wanted... As for CBA I would prefer not to have to deal with them ...

 

I don't have a lender yet. It's unlikely this will be a construction loan. Most likely just an investment loan secured by another property.