What is a land loan?
As the name suggests, a land loan, or vacant land loan, is a type of home loan that borrowers get from a bank or other lender to buy an empty block of land. Generally, buyers will purchase the land because they intend to build a new home there.
But a land loan isn’t the same as a standard home loan, and it comes with different costs and conditions. Typically, land loans have higher deposit requirements and higher interest rates, because lenders see this as a riskier proposition than buying land with a property already on it.
Why are banks more conservative with land loans?
Lenders are often more conservative with land loans because they see it as riskier than other types of home loans. There are many reasons for this view, including:
- Land prices can fluctuate much more rapidly than the price of an existing home, particularly in regional areas.
- Vacant land can take much longer to sell than an existing home.
- Lenders may worry about what will happen if you default on your loan and they end up with a plot of land with no house on it.
Three key points to consider when buying land in NZ
1. Size matters
The size of the plot is an important consideration when looking for a land loan. In general, the bigger the vacant plot, the less of the land value you will be able to borrow.
You may also find it difficult to find a lender for blocks of land over 2.2 hectares in size, as larger land loans are decided on a case-by-case basis.
2. Location, location, location
The plot’s location, access, and zoning regulations play an important factor in a lender’s assessment of a land loan. You’re more likely to secure a loan for a block of land that is close to roads, amenities and utilities than one that’s remote and far from the grid. Properties in cities or regional centres, and those which are serviced by sealed roads, are more likely to secure finance than remote locations that can only be reached by 4WDs. Zoning regulations are another important factor, so make sure your chosen section is zoned as residential.
3. Why do you want a land loan?
Your intention for the property is one of the most important factors in a lender’s assessment of your loan application.
If a borrower doesn’t intend to build on a vacant block of land in the near future, lenders might view them as a speculative investor, and be more reluctant to lend to them. However, if a borrower can demonstrate clear plans to begin construction within a year or two, they may have a much easier time securing a loan.
If you’re looking to secure a loan for a block of land, you can compare home loans for buying vacant land, construction loans, and other types of home loans on the Canstar website.
Buying a section with KiwiSaver – can you do it?
You can use your KiwiSaver to buy a section/land that doesn’t have a house on it, lawyers Smith and Partners points out on its website.
What’s more, KiwiSaver regulations do not specify when a house must be built. You can also use your KiwiSaver towards a house and land package. Just remember that you need to leave a minimum of $1000 in your KiwiSaver account, just as you would if you were withdrawing KiwiSaver funds towards a first home.
However, if you already own the land, or are being gifted the land, you cannot use your KiwiSaver to fund the cost of the build.
ASB’s question and answer section for using KiwiSaver to buy a home lays out a scenario to help spell this out. See below:
Q. We are trying to use KiwiSaver to buy land then build our first home. But we’ve been told this isn’t possible and we must buy a house and land package. Why can’t we use our KiwiSaver to build our first home?
A. The first home withdrawal can be used to help you buy land that you intend to build a home on (if you’re planning to live in that house). But you can’t buy the land and then use your KiwiSaver to contribute to the cost of building the house. Like with any property, you’ll need to apply to withdraw your KiwiSaver before you buy the land. The first home withdrawal isn’t just for house and land packages.
Of course, to withdraw KiwiSaver savings, you need to have joined the KiwiSaver scheme. If you’re planning ahead for buying property in the future, or are in KiwiSaver but are considering switching provider, use Canstar’s free KiwiSaver comparison tools.