Building a new home
Construction loans NZ
Construction loans in NZ pay your builder in stages as the house goes up, instead of handing over the full amount on day one. I help people in Auckland and around New Zealand set these up, from a first home on a new section to a house-and-land package or a knockdown rebuild.
By Yatin Kainth, Financial Adviser FSP1007497. Last reviewed
A construction loan is a home loan that the bank pays out in stages as your builder finishes each part of the house. You pay interest only on what’s been drawn, and the bank lends against the finished “as if complete” value. New builds are exempt from the Reserve Bank’s LVR limits, so some lenders accept a smaller deposit.
Construction loans NZ: how does a construction loan work?
With an existing house the bank lends against something that’s already there. With a build it’s lending against a house that doesn’t exist yet, so it pays out as the work is done. Each time your builder reaches a stage, such as the foundations, the frame, or the roof and windows, they send an invoice. The bank checks the work matches the contract and releases that payment.
You usually only pay interest on the money that’s been drawn so far, and many lenders let you pay interest only during the build. Once the house is finished and has its code compliance certificate, the loan moves to normal principal and interest repayments.
There are two common ways to buy a new build:
Progress payment contract. You own the land (or buy it first) and pay the builder in stages. This is the classic construction loan.
Turnkey contract. You pay a deposit when you sign and the balance when the finished house and land are handed over. It works more like buying an existing home, because the bank only settles once the house is complete.
Progress payments or turnkey: what’s the difference?
| Progress payment build | Turnkey build | |
|---|---|---|
| When the bank pays | In stages, as each invoice is checked | Once, at completion |
| Interest during the build | On the amount drawn so far | None on the build, because nothing is drawn until settlement |
| Your involvement | Higher. You approve each stage and manage variations | Lower. You mostly wait for handover |
| Main risk | Cost overruns and delays you have to fund | Long gap between signing and settlement, so your finances and the valuation can change |
| Typical buyer | Owns or is buying a section and choosing their own builder | Buying a house and land package from a group builder or developer |
Who is a construction loan right for?
- First home buyers who can’t find an existing home that works and want the lower-deposit options that come with new builds.
- Families who already own a section, or who’ve bought one and now want to build on it.
- Homeowners doing a knockdown rebuild on land they already own.
- People adding a second dwelling, such as a minor dwelling or granny flat, where it’s big enough to be financed in stages.
- Investors buying a new build, who benefit from the same LVR exemption. See property investment loans.
It suits people less well if the budget is already stretched before the build starts. Builds nearly always throw up some extra cost, and the bank won’t usually lend more once the limit is set.
Why can you build with a smaller deposit?
New builds are exempt from the Reserve Bank’s loan-to-value restrictions. The Reserve Bank describes the exemption as applying when you’re constructing a new home or buying a newly built home from the developer within six months of completion. So banks aren’t rationing low-deposit lending on new builds the way they do for existing homes, and some will lend with a smaller deposit. New builds are also generally exempt from the Reserve Bank’s debt-to-income limits, but the conditions can differ, so ask your lender how they apply it. See the Reserve Bank’s LVR page for the detail.
Being exempt doesn’t mean every bank will lend at a low deposit. For how this works with a smaller deposit, see 10% deposit home loans. Each lender still sets its own maximum and still has to be comfortable you can afford the repayments. If you’re a first home buyer, some participating lenders will also let you build with a Kāinga Ora First Home Loan, which needs a 5% deposit and has income caps. Your KiwiSaver first home withdrawal may help you buy the land, but it usually can’t fund build costs on land you already own. Check the rules with Inland Revenue and your provider.
Construction loans NZ banks offer: what do they need before they’ll fund a build?
A fixed-price building contract. Most lenders want a fixed price, not an estimate or a cost-plus arrangement, so they know the total won’t blow out. Under the Building Act, residential building work of $30,000 or more (including GST) needs a written contract anyway. Building Performance explains what the contract must cover.
Plans, specifications and a valuation. The bank orders a valuation of the finished home (an “as if complete” valuation) and lends against that figure, not the land value plus the contract price. If the valuation comes in below what you’re paying, you cover the gap.
Details on the builder. Lenders look at who’s building it. A builder registered with a completion guarantee, such as the ones offered through Registered Master Builders or Certified Builders, makes the application easier. Some lenders keep a list of builders they won’t lend on.
Your income and the end loan. The bank tests whether you can afford the full loan once the house is finished, at its test rate, not just the smaller interest payments during the build. If you’re paying rent while you build, that’s counted too. See how much you can borrow.
A buffer for the extras. Driveways, landscaping, fencing, curtains and council contributions often aren’t in the building contract. I always tell clients to have money set aside for them, because the bank won’t lend more once the budget is set.
How much of my own money will a build need? (worked example)
These numbers are made up to show how the maths works. They aren’t a quote, and every lender treats them a little differently.
Sam and Priya buy a section for $400,000, putting in $100,000 of their own money and borrowing $300,000. They sign a $600,000 fixed-price contract. The valuer says the finished home will be worth $1,000,000.
| Item | Amount |
|---|---|
| Land plus build cost | $1,000,000 |
| “As if complete” valuation | $1,000,000 |
| Lending at 80% of value | $800,000 |
| Own money needed in total | $200,000 |
| Already put into the land | $100,000 |
| Still to contribute to the build | $100,000 |
Most banks want your own $100,000 used first, then they fund the remaining stages. Interest starts small and grows with each payment. If Sam and Priya add a $20,000 kitchen upgrade halfway through, that’s usually their cost, not the bank’s. And because the build is exempt from the LVR rules, some lenders could go above 80%, which would lower the cash they need.
What are the steps to get a construction loan?
- Get a pre-approval so you know your budget before you sign with a builder. See mortgage pre-approval.
- Choose the builder and sign a fixed-price contract, ideally subject to finance. Ask about their guarantee and payment schedule.
- Send the contract, plans and specs to the lender. They order the as-if-complete valuation.
- Get formal approval and check how long it lasts. Builds take a while, so this matters.
- Settle the land if you haven’t already.
- Pay your own contribution into the early stages.
- Bank pays each stage as invoices come in. Some lenders send a valuer to check progress first.
- Code compliance certificate issued, final payment made, and the loan switches to principal and interest. Then it’s a good time to look at fixing your rate.
How can a mortgage adviser help with a build?
Construction lending has more moving parts than a standard purchase, and the timing matters. I compare lenders on the things that actually cause problems in a build: how they handle progress payments, what they’ll accept from your builder, how long approvals last, and what happens if the build runs late. Then I stay involved through each drawdown so your builder gets paid on time.
Renovating or extending instead? See renovation loans. Need to buy before you’ve sold? See bridging finance.
If you’re a developer building townhouses or subdividing, that’s a different kind of lending. Try the development finance pre-qualification tool first. For more on the process of building a home, read thinking of building your own home in NZ, and if you’re adding a minor dwelling, see building a granny flat in NZ.
Straight answers
Construction loans in NZ: which loan and which bank?
Written by Yatin Kainth, Financial Adviser at Mortgage Sense. Last reviewed 6 November 2026. Lender rates and offers change weekly, so treat this as a guide, not an offer.
What is the best construction loan for building a new home in New Zealand?
For most people, the best construction loan is a bank loan on a fixed-price contract with a registered builder, or a turnkey package. Several major banks lend up to 90 percent of the value for owner-occupied turnkey and fixed-price builds, while build-only loans are commonly up to 80 percent. Labour-only and owner-builder projects have fewer options and usually need a bigger deposit.
Expect the bank to add about 10 percent to the contract price when testing what you can afford, pay the builder in stages against invoices, and let you pay interest only while the build is underway. Mortgage Sense compares construction lending across 30+ lenders and handles the progress payments with you.
Which NZ banks offer the most competitive interest rates on new build home loans?
Most banks use the same rate card for new builds as for other home loans. Where they differ is the extras: some lenders pay a construction cash contribution of up to about 1 percent, and some run construction discounts. New builds are also exempt from the RBNZ deposit and debt-to-income limits at many banks, which can make approval easier.
Because those offers change often and come with conditions, compare the rate, the cash contribution and the clawback together. Mortgage Sense checks current new build offers across the main banks before you sign a build contract.
What construction loan should I get for a new build under $700,000 in New Zealand?
For a build under $700,000, a turnkey or fixed-price contract loan is usually the simplest choice. At 90 percent lending, a $700,000 total cost needs about $70,000 of deposit, plus a buffer for extras the contract does not cover. Some bank cash offers have different rules above and below $700,000, so check where your loan sits.
Choose turnkey if you want one payment on completion and less risk, or a land-and-build loan if you already own the land or want to pick the builder. See the worked example above, then ask Mortgage Sense to compare offers for your build.
Common questions
How much deposit do I need to build a house in NZ?
It depends on the lender and your situation. Because new builds are exempt from the Reserve Bank’s LVR limits, some banks will lend with less than 20%, and first home buyers may be able to use a Kāinga Ora First Home Loan with 5%. Many lenders still want more, so it’s worth comparing.
Do I pay interest on the full loan during the build?
Usually not. You pay interest on the amount drawn down so far, and it grows as each stage is paid. Many lenders let you pay interest only until the house is finished.
What happens if the build costs more than the contract?
The bank normally lends against the agreed contract and valuation, so variations you add yourself generally have to be paid from your own funds. That’s why I suggest a fixed-price contract and a cash buffer.
Is a turnkey build easier to finance?
Often, yes. With turnkey you pay a deposit up front and the rest at completion, so there are no stage payments to manage. The trade-off is less control over the design and the builder’s timing, and a long wait between signing and settlement.
Can I buy the land first and build later?
Yes. Lenders treat bare land differently to a home and often want a bigger deposit for it. If you plan to build soon, it helps to have your building contract in place so the land and build can be financed together.
What happens if my builder goes broke during the build?
This is what a builder’s guarantee is for. Depending on the scheme, it can cover finishing the house or recovering lost deposits, up to set limits. Because the bank only pays for completed stages, you shouldn’t have paid far ahead of the work. Check the guarantee before you sign.
Can I use KiwiSaver to build a house?
Sometimes. If you’re eligible for a first home withdrawal, you can use it to buy land you plan to build a home on, but you generally need to apply before the land is transferred into your name. If you already own the land, KiwiSaver usually can’t be used for the build costs. Check the rules with Inland Revenue and your provider before you commit.
How long does a construction loan approval last?
It varies by lender, and builds often take longer than expected. If the approval runs out before the build starts, you may need to be reassessed. Ask the lender how long the approval lasts and what happens if the build is delayed.
Sources
- Reserve Bank: loan-to-value ratio restrictions
- Building Performance: contracts for your building project
- Building Performance: choosing the right people for your building work
- Building Performance: remedies for defective building work
- Inland Revenue: KiwiSaver for your first home
- Kāinga Ora: First Home Loan