Banks urged to ease lending rules for flat-pack homes

The Albanese government has challenged Australia’s major banks to relax their lending rules for flat-pack homes after the Commonwealth Bank moved to make financing easier for houses built from prefabricated parts, amid a nationwide push to address the housing supply crisis.

CBA on Friday announced it would address barriers to financing for prefabricated construction, following a Treasury roundtable in November when banks, superannuation funds and other institutional investors committed to making it easier to lend for prefab homes that are quicker to build than homes built with traditional methods.

“There’s a national effort needed … to actually come up with innovative and creative solutions [to address the supply of housing’],” said CBA executive general manager of home buying Michael Baumann while touring ModSpace, which makes prefab homes, in Essendon Fields on Friday morning.

Prefabricated homes, also known as flat-pack and modular homes, are built in factories and transported near completion. However, homeowners are traditionally required to stump up 90 per cent of construction costs for prefab homes banks lend only for the final 10 per cent once the home has been transported to the site.

Under CBA’s new policy, which is a major bank first that will take effect this quarter, the bank will now provide progress payment loans of up to 80 per cent of construction costs ahead of the prefab home being affixed to the land, in a move welcomed by Industry Minister Ed Husic.

CBA will provide a maximum loan of $1.5 million for the construction of homes larger than 30 square metres. CBA will also help develop a standard form contract for “modern methods of construction”, such as flat-pack homes, to streamline the process for builders and borrowers when applying for a bank loan.

“As a government, we’ve been working with the building industry to cut red tape while encouraging banks to remove financing barriers holding back prefab and modular housing,” Husic said. “CBA has thrown out the challenge to the other banks with this move to see what more they can do to smooth the path for homebuilders interested in these methods.”

The Albanese government has turned to prefab homes to help deliver its target of building 1.2 million houses by the middle of 2029, which is behind schedule as construction costs remain high and potential buyers struggle due to high interest rates.