Major Nigel Gattsche of Lake Ferry believes tiny homes are the solution to New Zealand's housing woes.

Housing Minister Phil Twyford has said he wants more than half his 100,000 Kiwibuild homes to be built through prefabrication.

But getting a loan on a "prefab" or a small house is still very problematic.

Tiny houses – which are often too small to legally be a building – find it hard to win a loan, or even get a valuation.

SUPPLIED A finalist in Prefab NZ's Snug design competition, which was open to prefabs of 65sqm or less.

But some banks are reconsidering loans on other minor dwellings, including prefabs.

READ MORE:

* Interest growing for tiny homes online

* Public invited to vote for favourite prefab in design competition

* NZ and overseas companies asked to ramp up prefab ops for Kiwibuild

* The future of NZ housing is prefabs, and 180,000 'tiny' homes

Built largely offsite, prefab homes aren't always small, although Auckland Council set a limit of 35 to 55 square metres for a recent Prefab NZ backyard design competition.

Prefab NZ's chief executive Pamela Bell said there were many situations where people wanted to put a small dwelling like a granny flat, relocatable home or bach on a section they owned, or that a relative or friend owned.

SUPPLIED A tiny house in Ruby Bay, Nelson.

But she said securing bank finance was case by case. In the case of prefabs, land ownership was often a prerequisite, as banks liked to use it as security, should the offsite building process fall apart or the builder collapse.

Another sticking point was who paid the initial costs and insurance on the house while it was being built in the factory.

Bell said some banks were starting to consider ways to overcome these hurdles, including absorbing the risk themselves, insuring the manufacturer or outsourcing it to a third party.

SUPPLIED Kasia and Jake Walker's tiny house on wheels in Auckland.

Westpac is trialling a pilot programme with selected prefab builders to iron out any kinks in the lending process before considering it more widely.

Westpac NZ chief executive David McLean said currently builders were being asked to take a gamble that their customer would get a loan.

"Usually, any arrangement has involved the builder getting a large temporary overdraft over the course of two months and financing the build out of that, essentially using their own money."

SCREENSHOT At 55sqm, this tiny hexagonal home has drawn a lot of attention on Trade Me.

But Kiwibank said it still favoured the manufacturer bearing the risk until the building reached the site, "as the manufacturer is in possession of the asset". After that, a loan was much more possible.

ANZ said that owner-occupiers of prefabs generally needed to ensure they had enough of a deposit to build the house in the factory.

"We finance customers based on the home's minimum square metres. This is 45sqm for one bedroom, 55sqm for two bedrooms and 65sqm for 3 bedrooms.

"We will finance smaller properties, potentially down to 30sqm on a case-by-case basis. However, this is considered non-standard and requires a 50 per cent deposit."

SUPPLIED The ''flip'' design in Prefab NZ's competition can convert into a two-storey single house.

A key consideration with many small buildings, including tiny houses, sleepouts and apartments is whether they can be easily sold.

Tiny houses, for example, have niche appeal and their resale value might be limited, if they can get a valuer.

If the house is less than 11sqm and on wheels, it doesn't even need building consent because it qualifies as a load on a trailer, rather than a building under the Building Act.

So at the moment, it appears most owners are forking out large amounts for tiny houses without bank assistance.

Prices vary, but one builder, Tiny House NZ, has a range of buildings priced from $44,500 for a shell to $93,500 for a complete turn-key. Another 55sqm house attracting high interest currently on Trade Me is selling for $50,000.