CONSTRUCTION LOANS

Broadly the same as a standard home loan, though the calculation is different because the lender assesses the land and build together. Most lenders will go to 90 or 95 per cent of the total on-completion value with lenders mortgage insurance applying above 80 per cent, so 5 to 10 per cent plus costs is often workable and 20 per cent avoids the insurance. What differs is that the lender values the finished property based on your plans and fixed-price contract, then lends against that on-completion figure, so a strong contract price relative to the valuation improves your position. On house-and-land in the growth corridor you also often need to settle the land first and start the build afterwards, which changes when your deposit is actually required.

The applicant tests are the same as any home loan, covering income, commitments and credit history, but there are additional requirements attached to the build itself. Lenders generally require a fixed-price building contract with a registered builder, council-approved plans and permits, and domestic building insurance in place. The builder needs to be appropriately registered and, with some lenders, will be checked. Owner-builders are a different category entirely and only a limited number of lenders will consider them, usually at a lower loan-to-value ratio and with additional evidence required. If you are considering owner-building, tell us at the outset because it narrows the lender field substantially and changes the deposit you will need.

The loan is released in stages matched to the build, most commonly five: the base or slab stage, frame, lock-up, fixing, and practical completion. Your builder issues an invoice at each stage, you authorise it, the lender sends a valuer to confirm that stage of work is genuinely complete, and the funds are then released directly to the builder. You pay interest only on the amount drawn to date, so your repayments start small and step up as the build progresses. Once the final payment is made, the loan converts to a standard principal and interest home loan over the remaining term. The friction point is usually the valuation inspection, which is why we push the request through the moment your builder invoices rather than at the end of the week.

Approval typically takes two to four weeks, a little longer than a standard home loan because the lender also assesses the building contract, plans and permits. The build itself is where the real timeline sits, and a standard single-storey home commonly runs nine to fifteen months from slab to handover, with delays from weather, trade availability and material supply being routine rather than exceptional. Each progress draw needs three to five business days from invoice to payment once the valuer has attended. Budget for holding costs across that whole period, because you are usually paying rent as well as loan interest until you can move in.

Yes, and it is free. A fixed-price contract that does not meet lender requirements is one of the most common causes of a construction file stalling, and the problems are almost always fixable before signing and painful afterwards. We check that the contract is genuinely fixed price rather than cost-plus, that the progress payment schedule matches what lenders will fund, that the stages and percentages are conventional, and that site costs, driveways, landscaping, fencing and floor coverings are either included or clearly identified as out-of-contract items you will need separate funds for. Out-of-contract items are the single biggest source of budget shock on a new build, because lenders will not fund what is not in the contract.

This is the main risk in construction lending and it is worth planning for. The lender lends against the on-completion valuation, so if that figure lands below your land price plus build cost, you have to cover the shortfall from your own funds, accept a higher loan-to-value ratio with lenders mortgage insurance, or move the file to a lender using a different valuer. It happens most often in growth-corridor estates where a lot of similar stock is being completed at once, and on builds with high-specification inclusions that do not lift the valuation proportionally. Raising it early gives you options; discovering it at lock-up stage does not. We flag the risk before you sign wherever the numbers look tight.