Financing a new build is different from buying an existing home. Instead of a single drawdown at settlement, building finance is released progressively as construction milestones are reached. Understanding how building finance works helps you plan your build cash flow and avoid surprises.
How Building Finance Works
When you build a new home, the bank doesn’t release the full mortgage at the start. Instead, money is drawn down progressively — typically in four to six tranches aligned with construction milestones.
Standard construction milestone schedule:
| Stage | Typical drawdown % |
|---|---|
| Deposit / slab poured | 10–15% |
| Frame complete | 20–25% |
| Roof on / weathertight | 20–25% |
| Interior lined / plastered | 15–20% |
| Practical completion / CCC | 15–25% |
The exact schedule depends on your builder’s contract and your bank’s requirements.
Types of Building Finance in NZ
1. Construction Loan (Standard)
The most common form. The bank approves the full loan, and you draw funds progressively. During construction, you typically pay interest only on the drawn amount — you’re not yet paying principal on the portion not yet drawn.
This means your interest costs during construction are lower than the full mortgage cost — but build up as more is drawn. On a $700,000 build loan, drawing down 60% over 8 months means paying interest on progressively more money over the build period.
See Construction Loan NZ for the full construction loan guide.
2. Land and Build Package Loans
Some lenders offer packaged land and build finance — financing the land purchase and the build under a single loan facility. This simplifies the process but requires both the land and build to be approved by the same lender.
3. Developer Turnkey Purchase
If buying a new build “off the plans” (paying a deposit and settling at CCC), it may be financed as a standard mortgage rather than a construction loan — with settlement at a single point. The developer takes the construction risk.
Fixed Price Building Contract: Essential for Finance
Banks financing a construction project require a fixed price building contract with a licensed building practitioner (LBP). This:
- Caps the bank’s (and your) exposure to cost overruns
- Gives the bank certainty about the total project cost
- Is a standard requirement for NZ building finance
Cost overrun risk: Even with a fixed price contract, variations (changes you make during the build) are typically charged as extras. Maintain a 10–15% contingency above your contracted build price.
LVR Rules for Building Finance
Building your own home (owner-occupier) qualifies for new build LVR rules:
- Maximum 90% LVR (10% deposit of total land + build cost)
Important: The LVR is calculated on the end value (the appraised value of the completed home), not just the build cost. If your completed home is expected to be worth $900,000 and the land + build cost is $850,000, the bank may lend up to $810,000 (90% of $900,000).
What Banks Assess for Building Finance
When assessing a construction loan, banks look at:
- Land value — the security at the start of construction
- Builder credentials — typically must be a licensed building practitioner (LBP); many banks require a Registered Master Builder or similar
- Plans and specifications — Council consented plans required (or at minimum, building consent-ready drawings)
- Fixed price contract — from an LBP
- Cost breakdown — detailed breakdown of land, consent costs, build, and finishes costs
- Your income and serviceability — as for any mortgage
- End value — the bank will commission a valuation of the completed property
Managing Cash Flow During a Build
Interest-only during construction: During the build, you pay interest on drawn funds only. Budget for this — it’s real cash you need during the build period in addition to any rent you’re paying.
Draw schedule timing: Drawdowns are triggered by builder invoices at milestones. Inspections may be required by the bank (or by your own quantity surveyor) before each drawdown is released.
Contingency: Budget 10–15% above contract price for variations, unexpected site conditions, and code-required changes discovered during construction.
First Home Buyers and Building Finance
First home buyers building their first home may qualify for:
- First Home Loan: 5% deposit if income and property price qualify (note: price caps apply to the completed property value)
- New build LVR exemption: 10% deposit even outside the First Home Loan scheme
The combination of the First Home Loan and a new build/construction loan can allow a first home buyer to build with as little as 5% deposit.
Further Reading
- Construction Loan NZ — full construction loan guide
- New Build Mortgage NZ — buying a new build (vs building)
- New Build LVR NZ — LVR rules for new builds
- First Home Loan NZ — 5% deposit scheme
- Building Hub — all new build and construction guides
- Mortgage Hub — all NZ mortgage guides