Dan Crawford
Building from scratch, buying off the plans, or renovating an existing property all require a specialised approach to finance. With a Loan Market adviser on your side, you can:
A construction loan is a specialised finance facility used to fund the building of a new property or a major structural renovation. Unlike a standard mortgage, where the money is paid out at once, a construction loan is released in instalments as each stage of the project is completed. You will generally need to provide your lender with a fixed-price build contract and council-approved plans to secure approval.
A standard home loan involves a single lump-sum payment at settlement for an existing property. A construction loan is drawn down in stages, known as progress payments, which are paid directly to your licensed builder.
During the build, you typically make interest-only repayments on the amount you have used so far. Once the project is finished and a Code Compliance Certificate (CCC) is issued, the loan usually converts to a standard mortgage.
Most house and land packages in New Zealand involve two separate settlements. You first settle on the land purchase with a regular mortgage, and then the build portion is funded via a construction loan with progress payments.
Alternatively, you can look for a turnkey package, where you typically pay a 10% deposit upfront and the remaining balance only when the house is fully completed and ready for you to move in.
Instead of a lump sum, your loan is released in stages that match the physical progress of your build. When your builder finishes a milestone (such as the foundations, framing, or lock-up), they will provide an invoice. Once you approve the work, your lender releases that specific amount directly to the builder. This ensures you only pay interest on the money actually used, which helps manage your costs while the construction is underway.
New builds are often exempt from the stricter LVR (Loan-to-Value) restrictions that apply to existing homes. This means owner-occupiers can often build with as little as a 10% deposit, and some eligible buyers can access government-backed schemes with as little as 5%.
For land-only purchases or major renovations, lenders generally require a higher deposit, typically between 20% and 30%.
The right financing depends on the scale of your project. If you are making structural changes, a construction loan is often required to manage the progress payments to your builder. For smaller upgrades, you might be able to top up your existing mortgage using the equity in your home.
Many major banks also offer specialised low-interest Green Loans (sometimes at 0% or 1%) for energy-efficient upgrades like solar panels, insulation, or double glazing.
It is vital to have a contingency buffer in your budget to cover unexpected costs. Most lenders prefer a fixed-price contract to minimise risk, but they may also require a 10% to 15% reserve to cover any variations or price increases in materials.
Your Loan Market adviser will help you calculate this buffer early on so that your project doesn’t stall due to a small budget adjustment.
Before approving your loan, the bank will require a registered valuation based on your build plans and specifications. This is known as an “as-if-complete” valuation, which estimates what the property will be worth once finished. Once the build is complete, the bank may perform a final inspection to confirm the home matches the original plans before they release the final payment.
Let us know what your goals are and we will connect you with a Loan Market adviser directly.
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