Construction loans in NZ — how progress payments work

Construction loans differ from regular mortgages in one important way: the bank doesn't lend you the full amount up front. Money is released to the builder in stages as the build progresses — and at each stage, the bank's quantity surveyor signs off. Understanding this rhythm is the difference between a smooth build and a financially terrifying one.

The five typical progress draws

• Foundation/slab — usually 10–15% of contract value
• Closed-in (frame, roof, exterior cladding) — typically 25–35%
• Pre-line (interior framing, services rough-in) — typically 15–25%
• Fit-out (cabinetry, fixtures, painting) — typically 15–25%
• Practical completion — typically 5–15% (held back as retention)

Exact percentages vary by builder and bank. The contract should spell them out clearly before you sign.

Where cost overruns come from

• Site costs you weren't shown the full quote for (drainage, retaining, driveway, fencing)
• Variations during the build (changed your mind on tiles, upgraded the kitchen)
• Contract escalation clauses (in 'fixed-price' contracts that aren't truly fixed)
• Council inspection delays causing extended build time and labour cost

How banks deal with overruns

If the build runs over and you've borrowed up to your maximum LVR, you'll be asked to fund the overrun yourself — meaning extra cash you may not have planned for. Banks will sometimes increase the loan if the appraised end-value supports it, but this is a separate application that takes weeks. The safest approach is to borrow ~10% less than your maximum on the construction phase, leaving headroom for variations.

What a construction-specialist broker does

Knows which banks actually like construction loans (some don't — they'll route you politely away). Knows the QS sign-off quirks per bank. Has read enough builder contracts to spot the bad-faith escalation clauses. Coordinates with your conveyancer on the dance between unconditional, deposit, and first progress draw. Construction is the broker speciality where the value-per-fee is highest, in our view.