Sadly for kiwi home owners, leaky homes are a well-documented feature of the property market. Many owners of monolithic (plaster) clad properties built during the early 1990s to mid 2000s have since discovered weather tightness issues that mean their homes may need to be re-clad at significant expense, causing considerable stress.
Naturally, the sale of a leaky home requires an even greater level of disclosure than usual. For a fresh perspective on how to handle this kind of property, we spoke to Rebecca McCallum, a mortgage adviser at Loan Market who has negotiated the sale of many a leaky home for both sellers and buyers.
The Property Market: What advice do you offer to buyers and sellers of leaky properties?
Rebecca McCallum: Managing the sale of a leaky building requires all parties to exercise the utmost care, diligence and transparency. If you’re involved in a leaky home transaction, here are my thoughts:
As a seller…
- Obtain a building inspection from a bank-approved building inspection company before you put your property on the market. This should identify any known defects upfront and will help would-be buyers understand the scope of the re-clad process ahead.
- Get an estimate to remedy the defects (and bring the property up to current code). This will give potential purchasers a working figure to factor into their calculations. Again, they can take these documents to their bank, if required.
- Obtain a registered valuation for the property in its ‘current condition’, which you can provide to the purchaser and they can provide to their bank. The valuation could also include the ‘upon completion’(re-clad) value, if appropriate.
- Clean the property and make it as easy as possible for a building inspector or re-clad expert to access spaces like the roof cavity or the area underneath the house to assess the damage. In some instances, the inspection company may be required to undertake ‘invasive’ testing on the dwelling. This could mean holes in the walls where the inspections took place. Get an understanding from the inspection company of the possible damage to your dwelling before they commence.
- If the defects are too great to re-clad, look at renting the property out until land values improve to a level where they offset the cost of re-building.
As a buyer …
In all likelihood, whether or not you’re successful in buying a leaky home will come down to how the purchase stacks up for your bank. As with any loan, your bank is going to scrutinize the detail – but in these cases they’ll look even more closely at it, so they can fully understand your ability to service the loan and the associated risks.
At a practical level, if the vendor hasn’t already provided one, properties built between 1994 and 2004 will require a building inspection report. As the buyer, your bank will want to understand whether there are there any known weather tightness issues, or if the property is currently presenting high moisture readings. They will also want to know if weather tightness issues are noted in the LIM or whether there are any weather tightness claims registered with Council.
Leaky home lending is done on a case-by-case basis and there is a range providers in the market who will take on leaky home projects. These providers generally require the buyer to have a clear plan for the property, and for the remedial costs to be known at the outset.
Depending on the damage and the buyer, some banks may only lend up to 80% of the land value, with the value of the dwelling not taken into account. Typically this type of property is being purchased from a builder or developer where they can offset the risk against the skill of the buyer.
Having said that, depending on the buyer’s background and ability to service debt, we know of at least one provider in the market who will lend up to 75% (including funding for remedial work) of the value at completion (not the current value), and they may also allow the buyer to capitalise the interest and the fees.
Bottom line – to get a leaky home sale over the line is going to require the services of a team experienced in dealing with these kinds of properties. Getting the right agent and broker on board will increase your chances of success significantly, so get help early and don’t be tempted to go it alone!
The Loan Market’s Disclaimer: This is our understanding of bank policies on these matters as at today’s date. Each bank will have their own policy around the monolithic/ mono-clad building and therefore each application will be considered on its own merits.