FINANCING THE NEW HOME

Auckland Star, Volume LXXI, Issue LXXI, 14 September 1940, Page 13

FINANCING THE NEW HOME

NOTWITHSTANDING the general enlightenment of to-day, there are •thousands of New Zealanders who do not know the first thing about finaning the erection of a home. We all long for a place, be it ever so humble, that we can call our own; but many think they are up against a stone wall because they have not the whole of the cash required to pay for the house and section.

Financing of liouse building is largely a matter of proportion. Lenders will advance only a part of the total cost of the land and the house; and the amount of this proportion is governed by: (a) The policy of the lender; (b) the personal security, i.e., the probity and stability of the borrower; (c) the plans and specification; and (d) the general conditions relating to the district where the Jiouse is to be built. Let us deal with these factors seriatim.

(a) The policy of the lender varies according to the state of the money market and the regulations laid down by the institution or individual. At the present time the Auckland Savings Bank ami trustee crvrpovations will lend lip to 55 per cent (and as much as 60 per cent on brick buildings) of their valuation of the whole security offered (the house, built or to be built, and the section),

and charge interest at the rate of 41 per cent. Thus, if John Brown has a section valued at £300 and decides to build a house which will on completion be valued at £900, the completion of the home will provide a security to the lender of £1200, on which he would lend either £(!50 or £720, as the ease may be. If Brown has paid for his section, he requires only the cost of his house, and if be gets a loan of £720 he has to find only £180 in cash to complete the building. Under an Auckland Savings Bank mortgage it is, I think, quite safe to say that, if the terms of the mortgage are complied with and the property is not allowed to deteriorate in value, the principal would never be called up. Cases are not uncommon where such .1 mortgage has been in force for 30 years. The bank wants sound investments; in fact.its prosperity depends on the continuity and solidity of its securities. An added attraction is the right to pay off the whole, or any portion, of the principal amount in sums of five pounds, or any multiple thereof, on any quarter day, and thereupon all interest on the amount paid off ceases

from such date. Thus the continuity of the mortgage (which obviates the cost and trouble of renewals every live vears) and the easy method of repayment make the Auckland Savings Bank mortgage, for those who can get through ( i a <>0 per cent margin, the most aitraciivu in New Zealand. (b) . All lenders are influenced by the report they receivc on the probity and stability of the borrower; and this is rightly so. When tho number and amount of applications for loans ex' coed the monej available, it is onlj natural that, witl two securities ol equal value, tli< mortgagee shoulc choose the mar whose position sug jrests that he i; likely to be the bet ter and more regu lar payer.

(c) In almost every ease where the borrower requires the loan to build, a house, the lender will demand full and complete plans and specifications to enable him to judge the value of the finished article. Attractive, well arranged and convenient plans appeal to the lender just as much as to the owner. Add to these a soundly-framed and comprehensive specification and your application assumes a bifsiness-like air that appeals to trained executives. (d) Bome districts have fallen into ■ disfavour with lenders. Whore, for instance, transport charges have so increased as to create, in eHect, a levy 011 the land, thereby rendering it less readily saleable, lenders generally shun it. You, as a purchaser, may think it the finest place in the world, but the mortgagee lias to realise that you may make default in payment and that, if you do, he will have to sell a property in an unpopular district. A Neglected Factor. Another factor seldom taken into consideration by prospective borrowers is the potentiality of collateral security. This is an accompanying but subordinate security and may be in the form of other properly, insurance policies, gilt-edged stock, or, in fact, any marketable security. For instance, go back to the case of John I'rown. who had £1200 worth of seem !.;, on which he could only raise £720, v.liii 1 left him with £180 to find. Let us :i- unie that Brown had a life insurance poliov tlie surrender vahi-s of which was £2">o, or Government stock to this value which he did not wish to sell. In either case he could submit the policy or stock as , collateral security, • and thereby obtain a loan for the whole , £900 that his house. ■ was to cost. > Some life insur- [ ance companies lend l money on table ■ mortgages. Usually i they limit the ad- - vance to 70 per cent ■ of their value of the security, but they

Article and Plans contributed fey /. L. HANNA. insist on the borrower taking out a life policy for an amount equal to tlie The term is usually about l.» vears, and the weekly payments work out at a little higher than those required under a building society mortgage. Certainly you have the advantage of being insured, ibut it takes you longer to pay off. Building societies may be classified under one of two headings—terminating and permanent. The former is a co-operative type set up for the purpose of providing cheap money for its t-hareholdcrs in turn, the rotation being determined by lot in the case of ballot Han«, and by tender in tbe ease of other advances. A permanent building society i- usually an association to lend money, the capital belonging to a limited number of shareholders. Building society loans are usually repayable by instalments of principal and interest within 111 to 151 vears.

Under a terminating building society mortgage the period of repayment fe much shorter tlian the State Advances Corporation mortgages, thus offering a distinct advantage to thrifty persons who desire to make their homes tlielr own in the least possible time and mora than compensating for the fact thatthe terminating building society payments are somewhat heavier than those under a State Advances Corporation n-ortgage. An Attractive Home. The home illustrated this week is perhaps one of the most attractive in exterior appearance yet published. The writer introduced tho Bridge Deck home to New Zealand some years ago, and the ty|>e has earned a well-deserved success. The combination of the hipped—or bungalow—tiled roof with tin; modernistic touch of the decks creates an effect which must appeal to the most hardboiled die-hard. The two styles blend most harmoniously, and the result is pood-looking as opposed to pretty. I likened this style once to the smart woman in tailored clothes, and drew the comparison with the pretty girl in frills a fid flounces. One loves prettiness for the moment, but it is solid beauty of the good-looking thing that produces the lasting effect. This is only a small house, bnt the accommodation is considerable. Once again small waste space is the secret. It is designed to face the north, so that the kitchen, diningroom and two bedrooms face, the morning sun, whilst the living-room, dining-room and again two bedrooms get the mid-day sun. Just imagine the pleasure of rising early on one of these fine spring mornings and strolling out on one of the decks for a stretch and a good breath of fresh air. A better day would result.

The grouping of the rooms is good, and the drainage and plumbing is nioft economically arranged. The objective of beauty and economy has Wen well achieved. This charming little home could be built in Auckland to-day. well finished and fully equipped, for £1500.