In a New Zealand first Squirrel Mortgages and Master Builders have launched a new specialised funding model designed for residential builders and developers to eliminate the capital constraints of pre-sold turnkey project.  

The 100% Turnkey Funding Partnership is aimed specifically at one of the biggest pain-points in the residential build sector – access to capital.

Traditional funding models mean that even with a committed buyer, the builder still has funds tied up in the land and build right through to settlement, preventing them from moving ahead with securing their next site or other opportunities. 

Under the new product, Squirrel can fund 100% of the land cost and 100% of construction costs, less a 20% implied builder margin.

Depending on the builder’s actual margin, that may mean the entire project can be funded without the builder needing to tie up any of their own capital, John Bolton, Squirrel founder and group head of property finance says. 

The model has been developed by Squirrel exclusively in partnership with Master Builders.

Access to capital has consistently been one of the biggest issues facing building businesses. Master Builders’ State of the Sector research shows it has ranked among the sector’s top three pressures for four consecutive years, identified by 78% of respondents this year.

This is a significant change to the traditional turnkey model, where builders can have significant capital tied up in homes that are already sold, limiting their ability to secure the next site or get the next project underway.

Master Builders Chief Executive Ankit Sharma says the partnership responds directly to what building businesses are experiencing.

“Access to finance remains a real constraint for the sector. A builder can have sound projects and customers ready to go, but if their capital is tied up until those homes settle, they may not have the capacity to act on the next opportunity.”

Sharma says by bringing together capable Master Builders, the Master Build Completion Guarantee and a funding model that recognises those protections, this partnership can help good building businesses keep projects moving.

“The potential flow-on is more local work and more quality homes being built.”

For the buyer, the process remains straightforward. They sign an unconditional sale and purchase agreement and pay their deposit. Squirrel provides the funding behind the eligible project, the builder completes the home as usual, and the buyer settles when it is finished.

The Master Build Completion Guarantee is an important part of the structure.

Bolton says the product changes the funding behind a turnkey project, not the buyer’ s experience.

“You can’t build the next house when all your money is tied up in the last one. That's the problem we kept hearing from builders," he says.

Squirrel arranges about $4 billion in home loans annually and funds more than $1 billion in construction lending each year, having backed more than 1,600 development projects to date.

Eligibility will depend on Squirrel's lending criteria, and the product won't suit every builder or project. 

The product is only available through Squirrel advisers.