Finance, legal and insurance issues
This workshop looked at three questions about additional dwellings...
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How can I afford it?
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Is it legal?
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Can I insure it?
With additional dwellings in mind, we also briefed our panelists to consider co-ownership models, and the risks of unpermitted work.
Our guests...
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Lauchie Griffin and Sam Wood | Wakefield Lawyers
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Rustam Nomosov | Mortgage Lab - mortgage advisor
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Craig Davis | Kiwibank - home loan specialist
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Rex Duckett | Futurisk - insurance and mortgage solutions
Note: the following doesn’t represent professional advice - it records notes taken of the presentations.
Lauchie Griffin | Wakefield Lawyers - founding Director
The full (downloadable) presentation is provided here...
The most traditional route to getting more houses on a section is freehold subdivision. We have some decent sized sections in Paekākāriki, but there are other options in using the land for higher density: cross-leases and unit titles.
Then there are co-ownership options.
Subdivisions…are regulated by council and need consent.
“They are a real process”...It’s expensive, there are lots of hurdles to go through and it takes a lot of time.
You will need to legally define and place out all the services. This is a big task.
The loosening of legislation with ‘granny flats’ is restricted to 70 square metres.
There are minimum land areas that you can subdivide, and this is dictated by council.
Pros - the most common and straightforward way to break up land and you get clear title with it - which is better for mortgage lending.
“You are master of your domain.”
Cons - There are higher upfront costs and it's very time consuming - six months to two years. And all the costs are on the owner.
Cross-lease…is becoming outdated but you can still do it.
It’s complex but it does have some benefits. Minimal land areas still apply to some extent.
Pros - lower surveying costs and you can get more houses on the land than a subdivision. And council development costs will be lower.
Cons - still relatively expensive and you are left with a complex legal structure where you are sharing the ownership with another owner. This is a big negative. Also it is prone to defects of title.
The legal structure is complex. It’s also limiting in what you can do with the property in the future because you have another owner to deal with. Which means potential for disputes.
It has become questionable as an ownership device - the law commission has made the bold statement that the cross-lease is irredeemably flawed.
Unit titles…are a more sophisticated modern multi-owner arrangement.
It is a subdivision and expensive to set up but it has “all the bells and whistles” - the exact opposite of a cross-lease but achieves the same purpose.
It wouldn’t be appropriate for a granny flat situation or at least it would be very difficult.
Pros - it enables high density development and has a really rigorous structure for your unit and the managing of common property (shared accessways, gardens, a playground, you name it). It also puts in place a really strong governance structure - which the groups of owners get together and manage.
You’ve got this shared asset and because you’ve got a good structure it protects the collective asset. You can’t get your neighbour running down their house and it affects the value of your property - that sort of idea.
Cons - it’s still expensive. You’re not master of your domain - there’s community oversight, which means you can’t make alterations to your unit without approval particularly if structural. There are ongoing annual costs to manage the arrangement and common areas. You’re still responsible for your own rates but there are things like insurance, maintenance, security etc. You need to be able to cooperate.
Rent-to-own…is where you don’t have the money to buy straightaway.
You enter in to a contract where you pay an amount and then in a certain period of time you will own it, conditional on paying rent as down payments in the meantime.
“It’s quite cool when it works but it means locking in a price today, and that may be good or bad for either party.”
It's really good in family arrangements or where you have good relationships. That could be good in this community.
Pros - it gives someone a home and equally may allow the vendor to use part of the property and know they have a pathway out. It gives the purchaser time to secure the finance and is also ‘try before you buy”. You lock in a purchase price and build equity through rent.
Cons - the title doesn't transfer until the end. Banks won’t lend on that. The market value could go up and down in between. There are risks: what happens if the person defaults - doesn’t pay the rent, or runs away. The owner is left in the lurch. Likewise the purchaser may lose what they’ve paid.
License to occupy…you’re not getting anything other than the right to live on the property.
There’s no legal interest but it's something that's quite good in family arrangements. And it could be part of the jigsaw puzzle of a bespoke arrangement.
It's not a subdivision and it might be really appropriate for a granny flat. Simple, flexible and the Residential Tenancies Act doesn’t apply to it (which may be good or bad). The owner retains control.
Cons - no legal interest and a lack of secure title. But that might be okay under the circumstances. No Residential Tenancies Act protection. Technically, in legal terms under a license to occupy, there’s no legal exclusive possession. Strictly, the other people could walk through the house but in reality that's not how it works. It can lead to potential disputes because “it's very contractual”. It's a personal contract so it's not assignable. Once you’re dead it's gone.
A bespoke solution - a combination of these things; responding to the needs and circumstances. Getting the structure right is important because if you don’t you won’t get finance and you won’t be able to insure.
Rustam Nomosov | Mortgage Lab - mortgage advisor
Rustam has previously worked as a banker for 10 years. He describes himself as a “family 'finance' doctor”.
Rustam aimed to cover things from a banking perspective. What banks are looking for when they are talking to a client, be it a minor dwelling, building a house or doing renovations.
When we talk to the bank we need to have a purpose - are we building an additional room, say, or a granny flat? The purpose will determine the deposit.
It will vary depending on if you are building for yourself, for an investment property or a commercial property.
The second criteria for a bank is the income. Different banks assess your income differently.
For example, if you are building a rental property, rental income can be considered supporting income but the percentage of this can vary between banks. One bank may use 80% of rental income another bank may use 70-75%.
Equally, the differences between being self-employed, employed or employed overseas affect how your income is judged differently between banks.
If you are self-employed most banks will require two years of financials. If your income is in a different country this is treated differently by different banks.
There are different finance models for different projects.
When we are talking about granny flats and sleepouts it is common to top-up your current mortgage with your bank. However this can have different outcomes.
An example...
A client builds a sleepout but there is no paperwork and the bank says they can’t include income from rental of that sleepout with that application, even though the additional income from renting the sleepout was crucial. Yet a different bank was able to approve it. The same application but a different outcome.
It depends on the policies.
When you are mortgage free you can lend off the equity of your property but this also varies between banks . One client found that one bank required less documentation so went with them.
Shared ownership…with it getting increasingly difficult for young couples who are both earning to buy a house we see more of this.
For example, four friends come up with a deposit to live together. Different banks treat this differently.
BNZ is a little harder to get through.
ANZ is flexible, as is Kiwibank.
Sometimes it may be parents and their children. This is quite common too.
So for example, at the moment I have a couple buying two properties with their son. The son is studying but working fulltime at McDonalds so income is not so strong. So the parents are helping out to get him on the property ladder and once he has finished university he will buy the property from the parents when he is in a stronger position.
Note with shared ownership, that if one partner defaults the bank will chase everybody.
A few mistakes we see…
I dealt with a lifestyle block which had an unconsented dwelling and none of the major banks would touch it.
When something is unconsented it is really hard to get insurance and get buy-in from the bank.
In this case, we did find the finance because I don’t just deal with the main banks, we also have 30-40 different lenders.
I always say there will be somebody keen to lend. However, be careful - don’t sign something without legal or financial advice.
Another common mistake is when clients start building and they find themselves financially short. It creates a lot of paperwork, making banks not liking overcommitted customers.
Kāinga Ora First Home Partner
“First Home Partner is a shared ownership scheme administered by Kāinga Ora for first home buyers who are able to service repayments, but do not have enough savings or a deposit to receive financial pre-approval for a home loan.”
Rustam’s understanding, however, is that this scheme is now closed (there was huge demand).
The scheme gave you 15 years to buy Kainga Ora’s share of the deposit off them. It allows property owners to buy with just a 5% deposit which he saw a lot of because it can be more often funded through KiwiSaver.
There are a few hurdles - for example in terms of the amount of time you’ve been in employment.
It’s important to have a good structure and good advisors asking questions.
“I always tell clients you can Google and Chat GPT, and look at your mortgage online but my advice is free. Ask the question, I’m in the market all the time. Don’t be shy. Ask your banks, your lawyers, your brokers. Don’t be shy”
Craig Davis | Kiwibank - home loan specialist
Craig’s been with Kiwibank for 13 years and lending for 8 of those years.
About two years ago Kiwibank brought out a Co-ownership product.
They have simplified the idea of buying with friends and family.
“We understand there are a lot of people later in life with an asset but not a lot of cash. And we have a lot of people starting out in their working lives who have the affordability in the future to get on that ladder. Separately they are stuck but when they come together we have the ability to join the two together. It could be where Mum and Dad own the home and kids come in and borrow the money and pay for it. Then over time the parents downsize and the kids increase their equity share and can buy it.”
“What the community trust is doing re. additional dwellings really aligns with what we’re doing here.”
If you have an idea come and talk to someone - have the free no obligation chat. The banks, lawyers and council all align together. Once you’ve spoken to your bank and understand what you can do, you can get legal advice and so forth down the path,
“Someone like myself can assist you right from the start through till when you’ve got the keys.”
Kiwibank have run a TV series On the Ladder which is on Three Now (and YouTube - On the Ladder with Kiwibank) in which they follow six different groups of people buying together: friends, a mother and a son, two families (eight people in one house) etc.
Craig was involved with some of the filming and one thing that came up with people was encouraging them to think of the ‘what if's’.
What if this goes wrong? Think about it at the start and put an agreement in place, when you’re all happy and getting along.
An exit strategy. It will save you money in the end.
Again, work with experts: lawyers, bankers, brokers. People who do this everyday.
Rex Duckett | Futurisk - insurance and mortgage advisor
Based in Ōtaki with offices on the old main highway, Rex has worked independently as an insurance advisor on the Kāpiti Coast since 1989, offering a personalised service across all insurance types. He has someone else who specialises in mortgages in the business as well.
Some good news! The fire and emergency service levy in insurance premiums is reducing from 1 July 2026.
Construction risk insurance…if you’re adding a building to your property a builder or construction risk insurance is a must.
This must be in place before the site work starts.
You can’t buy it halfway through the build when you decide you need to get some more money and finance requires insurance.
Get construction risk whether it's a small or big build.
For a lot of people they will already have house insurance.
Some insurers do have a provision where you can’t undertake more building work without additional cover over a certain amount and that might only be for
$15,000 - $20,000. Again, do it before the work starts.
Unconsented works…as long as you meet code and you’re going through the process of code compliance and getting a consent, generally you can get insurance.
Insurance isn’t a big issue for different co-ownership models.
The insurer needs to know who the owners are.
A mortgage lender also needs to be noted on the policy.
With an additional dwelling they also need to know if it will be unoccupied or rented.
Fire levies...how much when building an additional dwelling?
If you’re just adding an outbuilding - a sleepout say - then you’d just increase the sum insured (taking into account the money spent on the new dwelling).
That doesn’t impact your fire levy.
But if it's a separate livable dwelling - a new kitchen - you’ve now got two fire sources on your property which means two fire service fees if you do it properly.
Hazards…what are the complications with coastal hazards for a beachside community or flooding?
At the moment we don’t have too many insurance issues.
If you are in a hazard area you do need to disclose it to the insurer.
Also, if there’s been claims for earthquakes or flooding they want to know.
But for most of those it doesn’t cause too many issues and you can work around.
“In the future I’m sure as the mapping gets better insurers are going to use those maps more and more and charge more premium on higher risk areas once they’ve figured it all out. Christchurch used to have low earthquake rates - it doesn't any more!”
Landlord extension cover…
”If you have tenants in your additional dwelling we’d highly recommend you add a landlord's extension to your policy.”
It will cover you for a loss of rent if something happens to the property. If it’s unlivable and you can’t get rent it might affect your ability to pay your mortgage.
Also if your tenant leaves quickly it may cover you for a month or two to make up for loss of rent.
It will also cover you for malicious damage if a tenant gets grumpy.
That sort of damage is not usually covered in your standard house policy.
Rex has got landlord extension cover for premiums ranging from $200 to $600 per year. It depends on the value of the property.
Paying $400 per year is probably claimable through the tax system.
“We do quotes and shop around to different insurers, and we cover most insurances including life insurance and mortgage insurance.”
