A woman is warning others about the perils of building a pre-fabricated house after getting stuck living in a caravan with her family for more than two years after being knocked back for a bank loan.

Jessica*, who is a nurse, and her builder partner bought a piece of land in Auckland at the end of 2016 for $220,000 with the dream of either putting a transportable house or kit-set type home on to it.

But two banks and two mortgage brokers later she has virtually given up hope after being turned down for a loan multiple times.

"We fell into the trap of all the hype over transportable or kitset homes being an affordable way to have a new home and have now been living in a caravan/container on our section for over two years with our kids.

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"We were naive and now cannot find a solution as banks won't loan on these 'affordable' options."

Jessica, who doesn't want to her full name or location published over concerns about reprisals from the council, said mortgage brokers had told her to get a personal loan to fund the house until it was on the land.

But Jessica said taking a loan for a $120,000 kitset at 16 per cent interest was too big a risk for her.

"It's just too risky if you only have an average wage."

Jessica said she had also been shocked by the amount of paperwork and expert reports needed before a bank or council would even look at an application.

She estimated it could cost around $40k to get those done before any building work started.

"All the fantastic TV shows showing wonderful tiny homes don't mention the cost of gaining consents and engineering because when you do anything out of the norm the council can't understand it so it costs a fortune to get approved."

The couple got a mortgage to buy the land without any problems.

Jessica had sold a house she owned in New Plymouth to move to Auckland and used $110k towards buying the section so they only had a mortgage on half of it.

She says at the time they applied for a mortgage over the land they also wanted to get a construction loan but their mortgage broker told their bank they didn't want to build and would live in a caravan on the land.

"She told me to just get in there and do my new job and then apply for a construction loan."

But when they went back to the bank they refused to lend more citing the fact that the mortgage broker had told them they wouldn't be building.

Jessica says she didn't know her broker had told the bank they wouldn't build and was furious.

The section had come with a resource consent and plans already drawn up for a small house but when they began to take steps toward getting the site ready found they had to get the engineering report re-done.

Hidden costs

"There is so much stuff they don't tell you," Jessica said.

"The engineers said the reports were too old. Everyone is trying to get their piece."

They paid for new reports to be done. But when they went to the bank they found they didn't want to lend on kitset houses, transportables or tiny homes.

"They won't loan on those, anything out of the norm. They want a nice three-bedroom house which is designed and drafted up and has a builder's quote."

"When you start doing that it costs $400k to $500k. And we never wanted to do that."

Banks are cautious when it comes to lending for transportable homes. Photo/Getty Images.
Banks are cautious when it comes to lending for transportable homes. Photo/Getty Images.

Until recently, they had lived with no power or running water but neighbours had kindly helped them out by connecting them to power and she is now able to have a washing machine.

"We had no power and no septic system with a baby. It has certainly had a big impact on our life and relationship.

"We don't go anywhere any more. We go to work and come home because we have to do everything colonial style."

Jessica said they had considered selling up and moving out of Auckland but her partner's son lived here and they wanted to remain close to him.

The couple said they had been knocked back directly by BNZ and Kiwibank and assumed other banks wouldn't lend because they had tried via brokers.

A spokeswoman for the BNZ said it did finance kitset and prefabricated homes as part of the innovative ways it helped Kiwis get on the property ladder.

"However, our housing lending decisions are always made on a case-by-case basis taking individual circumstances into consideration."

A Kiwibank spokeswoman said it did not secure loans on a building manufactured offsite but once the building was owned by the customer it could be used as security for a loan provided they met certain requirements.

"Once the home is delivered to the site and has code compliance issued, it can be valued and therefore become security for a loan."

She said kitsets constructed on-site were a type of construction loan and the conditions which applied to a construction loan depended on many things.

"Cost overruns are very common on self-build projects and banks will typically test a customer's ability to repay a loan including the cost overruns to ensure that they are not placing a customer in a position where a poor outcome is possible."

She said the bank was not aware of customers using personal loans to buy a pre-fabricated home.

"Customers commonly use other assets to secure a loan for a home manufactured off-site, they might use the land that they plan to move the home on to or another property."

Changes on the horizon

Last year, Westpac began a trial funding six pre-fabricated homes in Auckland.

A Westpac spokesman said the prefab trial was ongoing and now included the regions.

"The market for off-site manufacturing is constantly evolving and we are continuing to explore it.

"We are seeing growing interest from both builders and homeowners, and have funded some exciting projects."

Read more:
Westpac runs trial to bankroll prefab homes

But he would not confirm if the original six houses had been completed and whether people were now living in them.

"Unfortunately we're not in a position to talk about it in detail at the moment because of market sensitivities."

Last year, brokers told the Herald first-home buyers were virtually locked out of the prefabricated housing market because most banks would not lend on a house until it was on site because they cannot 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."