A young couple put a conditional offer on an apartment in central Wellington.  They spoke to their bank about obtaining finance and were advised that they would need to make sure the property was fully insured. 

When they came to obtain and review the insurance documentation they discovered that the apartment was not fully insured as it had a very low earthquake rating.  On that basis, the bank was not prepared to give them finance for their purchase.  

If you are looking to buy an apartment it is very important that you check the earthquake rating of the property before your offer becomes unconditional.  This information should be available from the Body Corporate.  You should also obtain a LIM Report which will identify whether the property at least meets the minimum standard (which is currently 34%).  It will also show if the property is in a particularly earthquake prone area (for example on a fault line). 

A low earthquake rating could have major implications on whether or not you are able to obtain finance.  These implications are increased especially if:

  • You are borrowing a significant amount of the total purchase price (in other words your loan to value ratio is high); and/or
  • You are borrowing near the limits of what you can afford to repay.

If you put an offer on an apartment, that offer should include a further term of sale which allows you to obtain ‘satisfactory finance’.  Satisfactory finance will include being able to ensure the property is fully insured.  Your legal advisor can help to make sure that your offer provides adequate protection against these risks.

Laurie Pallett
Senior Registered Legal Executive