‘Worried I’ll lose everything’: Rate rises turn new home dreams to nightmares

Key points

  • Some people who signed house-and-land packages last year are now struggling to get the finance they need to settle their purchase.
  • Many are trying to get out of their contracts, or sell their packages on Gumtree or Facebook Marketplace.
  • The HIA expects house-and-land builds to drop to their lowest level in a decade next year. 

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Nasr Khattab was making big plans when he signed a contract to buy a block of land in Melbourne’s outer north last April.

The 46-year-old builder was excitedly planning to upgrade his family from their current home in Greenvale, to a new two-storey house he wanted to build on a new block of land in the same suburb.

Nasr Khattab had big hopes when he bought a block of land last year. But nine interest rate hikes later, he is struggling to get the finance needed to settle on the block. Credit:Eddie Jim.

Khattab was confident he would be able to get finance to purchase the $480,000 block, and put down a 5 per cent deposit.

But now, after nine rate hikes by the Reserve Bank of Australia, his excitement has turned to dread.

He no longer qualifies for the loan needed to settle the purchase of the block in six weeks time and then build the new home. Multiple banks have said they will not lend him the money.

Worse, if he has to hand back the land, he will lose his deposit, and have to cover any potential loss if the developer resells the block for less than $480,000.

Nasr Khattab was hoping to build in Greenvale in Melbourne’s outer north.Credit:Joe Armao

“I’m really worried I’ll lose everything if I can’t pay for the land,” Khattab said. “I’ll lose money and will have nothing.

“We still hope that someone will come and take over from me because I’ve tried to get out of the contract, but the answer has been no. So, right now, I’m just trying to save as much as I can.”

Khattab is not alone. Rapidly rising rates have left many buyers – particularly those who purchased house-and-land packages or off-the-plan apartments when property prices were higher — fearing they will lose their finance, a situation exacerbated by increased building costs and the rising cost of living.

Conveyancing firm Nest Legal’s director and principal lawyer Laura Vickers said many who signed off-the-plan contracts were “freaking out” as their settlement date approached.

Home builders are facing finance troubles as interest rates rise.Credit:Jason South

“Many are coming to us wanting to know how they can get out of contracts,” Vickers said. “People are worried, and a lot are under the misunderstanding that they can get out of the contract.”

She said there were as many calls from people hoping to get out of contracts, as there were from people looking to enter them.

The situation for some was dire, Vickers said. Some buyers were looking to off-load their properties via Facebook Marketplace or Gumtree because some land contracts stipulated they could not readvertise their blocks through an agent.

Across the Melbourne home-building belt covering Cranbourne, Sunbury, Craigieburn and Rockbank, there are more than a dozen house-and-land packages advertised for sale on Gumtree alone.

Restrictions on lending are hampering those who were planning to build, so much so that the Housing Industry Association has predicted home construction will tumble to its lowest level in a decade.

HIA chief economist Tim Reardon expects detaching housing starts will fall from 101,100 this financial year, to 96,000 next year, and detached housing approvals in Victoria will fall from 35,700 to 30,000.

Off-the-plan apartments were facing similar issues, Reardon said, as buyers, particularly first home buyers, struggled to get finance.

“It’s become increasingly expensive for banks to lend to first home buyers,” he said. “They are finding it harder to get finance. This is despite mortgage delinquencies in Australia being just above 1 per cent.”

Titled land is up for sale online on websites like Gumtree.

Reardon said the cancellation rate – that is the number of projects that do not go ahead because people cannot get finance – is typically less than 10 per cent nationally.

However, it is now sitting closer to 25 per cent and is expected to stay at that level until interest rates stop rising.

“What that is saying is that market confidence is very low,” he said.

The HIA expects more pain ahead for buyers like Khattab, noting the impact of each rate hike can take months to impact borrowing capacity.

“The February increase will continue to adversely hit the market until the end of this year,” Reardon said. “The inability for home buyers to access finance will continue to deteriorate.”

Reardon noted about 200,000 new homes were typically built nationally each year, making up about 0.02 per cent of total housing stock.

Metricon general manager of sales in Victoria Drew Glascott said there were a number of factors affecting those buying house-and-land packages, though he was more optimistic about the future.

He expects supply chain issues, including the lack of tradespeople, will improve in the next year, and recommends buyers keep speaking with their lenders to find solutions to difficult financial situations.

“Customers need to keep in touch with their lender as they wait for their land to title … to keep them across any potential problems,” he said.

“If any home buyers did find themselves … having their finance withdrawn, I would encourage them to shop around, not to give up and to find the right lender that will work best for them.”

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