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
How does a construction loan work?

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 conditional 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.

How much can you borrow?

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.

How can Westpac help?

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.