Construction Loan

Kiwis love to build things and while it can be fun, it can be hard work too and things don’t always go smoothly. So before you start making plans and call a contractor, it’s good to get an idea of just what building a house involves and the financing you might need.

It's for you if:

  • you’re building a new home
  • you have at least 10% deposit to get started*
  • you’ll live in the home you’re building

If you’re thinking of building a new home, a construction loan has some great benefits to help get you into your new home sooner.

Key benefits:

  • 12 months pre-approval so you have plenty of time to find the right section and plan your build
  • Interest only during construction period to help reduce your outgoings during the build
  • Up to 12 months repayment holiday** to help  manage your cash flow during the build - especially handy if you’re trying to build and pay rent or an existing mortgage at the same time
  • No annual account fees for two years on any new credit card with hotpoints@ to help with those extra purchases

First you need to get a valuation done showing how much the home will be worth when it is completed. This helps determine the amount you can borrow.

Once building is underway, the construction loan is paid in agreed stages. Your contract with the builder may set out how much is paid at each stage, and the building will need to be inspected and certified at each stage to say the work has been done (and therefore has a certain value at that stage). If you’re borrowing quite a lot of money you may even need to get interim valuations done by a registered valuer.

The money is usually paid direct to the builder or supplier, rather than to you, and your deposit is used first.

During the project you only pay interest on the money already paid out. This helps keep payments low while you’re paying other costs such as rent.

A construction loan is usually on a floating interest rate.        

So whether you’re ready to start building or still planning your new home, there’s never been a better time to get in touch.

If you need a loan to build a new home, the amount you can borrow depends on the value of your home, your project and your ability to repay the money.

Here are some general guidelines on what you may be able to borrow:

  • if you’re topping up your loan – up to 90% of your home’s current value
  • for major building work – up to 90% for fully managed turn key contracts, or up to 65% for labour only contracts
  • if you’re buying a section with services – up to 75% of the land value.

Depending on the amount you want to borrow, you may need to get valuations at different stages of the project.

And a caution: cost overruns are common during building work, so keep track of your budget as the project goes on. That way you can make adjustments as you go rather than find out later you can’t afford to finish!

To work out how much you might be able to borrow and what it might cost, have a go on our online calculators.

If you think you’ll need to borrow money, come and talk to us early on so we can let you know how much you might be able to borrow, and the best way to go about it.

If you’re already a customer, you may have lots of options already with your Choices home loan, such as using your buffer, getting a top up or setting up a separate renovation account.

If you’re a new customer you can apply for a Choices home loan to buy, build or refinance your home, or to buy a rental investment property.

Choices is a flexible home loan you can do just about anything with. You can check it out on the Home Loans page.

Don’t forget the insurance

Your normal insurance may not cover the extra risks as you build, so make sure you have Contract Works insurance – you’ll need to arrange this before you start the build.

Call the Westpac Insurance team on 0800 809 378 and they can talk you through the details.

* If lending is over 80% LVR (loan-to-value ratio), it must be a new build with a single fixed price contract that specifies a completed, ready to live in property. Applications must include Master Builders Guarantee or a Certified Builders Guarantee, which includes ‘non-completion’ cover.

 **No principal repayments will be required and interest costs will be added to the loan.  The cost of interest capitalisation will be included in the approved total home loan amount and must not take the total LVR over 90%. The repayment holiday will end on the earlier of 12 months following the initial drawdown or one month following the final construction drawdown.

Westpac Contract Works Insurance is not guaranteed and will be underwritten on a case by case basis. The availability of any insurance is not guaranteed and is subject to the acceptance and approval of a complete application. Terms, conditions, exclusions and limits apply to insurance cover and more details can be found in the relevant policy document, which is available at or on request by contacting us on 0800 809 378. Westpac Contract Works Insurance is arranged by Westpac New Zealand Limited (“Westpac”) and underwritten by Lumley General Insurance (N.Z.) Limited (“Lumley”). Westpac does not guarantee the obligations of, or any products issued by Lumley. Westpac may receive commission payments as a result of the arrangement of Lumley insurance policies. Fee discounts and waivers only apply to any new credit cards or insurance policies. Westpac’s current credit card lending criteria apply to all applications and transfers. Credit Card Conditions of Use apply. hotpoints® is a registered trade mark of Westpac Banking Corporation. Hotpoints terms and conditions apply. You can get a copy of the current disclosure statement for Westpac New Zealand Limited from any Westpac branch in New Zealand free of charge. Westpac New Zealand Limited.

Westpac’s current home loan lending criteria and terms and conditions apply. An establishment charge may apply. An additional fee or higher interest rate may apply to loans if the application is accepted but does not meet the standard lending criteria. All applications for finance are subject to Westpac’s applicable lending criteria. An establishment charge and Low Equity Margin may apply. The information in this guide and the terms, conditions and pricing for Choices home loans and the other services described may vary from time to time.