First-home buyers are being locked out of the prefabricated housing market because most banks won't lend on a house until it is on site because they can't take security over it.

A security interest is a legal right granted by a debtor to a creditor over the debtor's property which enables the creditor to have recourse to the property if the debtor defaults in making payment.

Prefab houses - those built in a factory offsite rather than on the piece of land where they will be located - have been put forward as a solution to the housing crisis because they can be built much faster than a stand-alone home, potentially saving people money.

But Bruce Patten, a mortgage broker with Loan Market, said people wanting to transport a home on to land typically needed a 20 per cent deposit for the land plus enough savings to buy the house, move it and get the site prepared because banks wouldn't lend money on it until it was on the land.

"It is not practical to do a relocation as a first-home purchase," he said.


Patten said newly built transportable houses were easier to get finance on but most people he dealt with wanted to move villa-style houses onto land in Auckland.

"Because the land is so expensive we don't get too many people who want to put a transportable on it."

New transportable homes can start from around $90k.

Patten said older second-hand homes could be bought for $30k to 40k but a bank may not lend on them until they are on site and have a code of compliance.

A spokesman for ANZ bank said it did lend on prefabricated buildings but only up to a 50 per cent loan-to-value ratio on the building.

"Because we can't take security over the building until it is located on the property, the lower LVR limit reflects the risk of something happening to the building, which might result in full or partial loss, before it is installed onsite."

A spokeswoman for Westpac said it assessed loans on prefabricated buildings on a case-by-case basis.

"Prefab builds currently require a different approach than the traditional house which is built on land because we may not be able to recognise the value of the house until it is attached to the land and becomes part of the security.

"We assess each application on a case-by-case basis. There may be additional requirements; each situation is different and assessed on its unique characteristics."

Banks are cautious about lending on pre-fabricated homes. Photo / John Stone.
Banks are cautious about lending on pre-fabricated homes. Photo / John Stone.

An ASB spokeswoman said construction lending which included the building of prefab homes was typically based on the progressive release of funds at each stage of the build.

"From a responsible lending and risk perspective banks will not lend without security, or lend an amount greater than the value of the security."

BNZ said it knew there was a lot of interest around building prefab houses.

"It's something we hear from our customers. Because of that we are currently working with those in the industry to introduce a lending solution that meets this new demand. We look forward to sharing more when we can."

PrefabNZ has said it is working with several major banks and finance professionals to come up with solutions to the industry's finance issues.

It wants to enable first-home buyers to purchase a transportable home using a traditional mortgage and for residential home buyers to get access to a two year builders warranty that guarantees the deposit and any defective work.

Pamela Bell, chief executive of PrefabNZ, said it was starting with the easier option of enabling people to get a mortgage for a transportable house rather than trying to fund panels or pods.

"That is a piece of work we have got a couple of banks looking at."

It had hoped to make an announcement at its recent conference last week but had to pull the plans after building warranty business CBL Insurance was placed into interim liquidation.

"It was done and dusted to do at the conference."

However she hoped to be able to make an announcement in the next few months.