Picture this. You’ve found the right block, taken advantage of a first-time builders grant and pre-approval for your land and construction loan is good to go. All is right in the world. The birds are singing; the power lines are humming; the phone is ringing. It’s your lender.
We are sorry to say that because your block is close to a high voltage transmission line (read: power line), we are unable to approve your loan.
The birds stop singing. The power lines keep humming.
Thanks to a major spike in construction in Australia and a big focus on low-deposit home loans, more than a few borrowers are running into this slightly unusual situation.
Basically, some lenders will not provide Lenders Mortgage Insurance to a borrower, if the security boundary of a block is close to high voltage power lines. (Some stipulate 50 metres, but this will ultimately depend on the lender.) If you’re not sure of what a high voltage power line looks like, just picture a mini-Eiffel Tower.
Lenders Mortgage Insurance or LMI is required if a borrower is unable to put down a 20% deposit. This type of insurance protects the lender if you happen to default on your home loan.
Put simply, it’s an insurance that protects the banks. (Read more about how LMI works here.)
The most important point we drill home every week is that there are many different lenders out there. And each one has a range of different lending capabilities. So if you’re declined by Lender A because the power lines are too close to the boundary of your block, check out what Lenders B to Z are up to.
The unfortunate thing is that lenders are often advised about power lines during the final phase of valuation, so if you do run into this issue, it will happen later rather than sooner.
But now you know about the issue, you’re ahead of the game.
If you need advice on securing a land and construction loan, please contact our mortgage brokers.
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