Construction Loans In New Zealand: What do you actually need to know?

oliviaspence8
Aug 28, 2025
7 min read

Progress payments, deposits, and contracts—explained in plain Kiwi English.

So you’ve decided it’s time to get on the property ladder. It’s the Kiwi dream, and it makes sense when you look at how many New Zealanders own their homes and how many new builds are coming through over the next few years.

But where do you even start, and who actually has the answers? What are progress payments? Are you really “safe” with a fixed-price contract?

I sat down with Ollie Sheremetov and asked him the questions we all want to know, and a few we don’t realise we should ask. If you’re considering building and you’ve stumbled across this post, you’re in a great place to begin your research.

What makes a construction loans different in New Zealand?

A construction loan in New Zealand is usually set up as a staged or “progress payment” loan. The first drawdown typically covers your land once titles are out. After that, funds are released in stages that line up with your build milestones. During construction you’ll make repayments that are most often interest only for the first twelve months, and those repayments naturally increase as you draw down more of the loan. Later in this post I’ll share a few practical ways to ease the cash-flow pinch when you’re balancing rent or an existing mortgage at the same time.

Why is it structured this way? It’s a pay-as-you-go model. It gives the bank more assurance and it reduces immediate financial pressure on you because you aren’t repaying the whole project from day one. While funds are being drawn, rates are typically floating.

One of the biggest areas of confusion is how the structure plays out in real life. From my own first build many years ago, I can confirm the learning curve is real. We dealt directly with the bank and once the documents were signed and money released, we weren’t sure what to do next. We ended up waiting for instructions and actually delayed our own progress payments.

Two things help.

First, the bank releases the drawdown into your account, then you pay the builder.

Second, stage payments are due on completion, or very near completion of the named stage in your contract.

The big one that trips people up: mid-build changes. If you’re paying privately, variations are straightforward. If you want the bank to fund a change, your advisor will usually need to reassess the loan and request an amendment to the drawdown schedule, because the bank treats that schedule as cemented and final once it’s approved. Any change to scope or timing needs fresh approval which can pause progress until it’s signed off.

“Pay-as-you-go lending keeps cashflow sane while you’re juggling rent or a mortgage.”

How progress payments actually work

Your exact-how depends on the builder you choose, but in my experience the rhythm is similar across the industry: earthworks and foundations, then frames, through to lock-up and finally practical completion or CCC. At Triangular Homes we follow the standard Master Build schedule because it fairly balances things for both client and builder.

However your stages are spaced, the payment flow is the same. Your builder invoices you when a stage is complete. You send that invoice to your advisor or lender. The bank checks it against the contract schedule and, if it matches, releases the funds into your account so you can pay the builder. If that sounds a bit long-winded, I agree. One easy improvement is to connect your advisor or bank manager with your builder from day one. Ask the builder to copy them on stage invoices. That small step often trims a couple of days off processing.

In terms of repayments, expect your land loan and your build loan to sit on interest only while you’re drawing funds. That’s because the balance is changing and because interest only is usually the most cost-effective way to manage cash flow during construction. Land repayments feel steady because you draw that in full early. Build repayments start small, those first invoices might be ten to twenty thousand. As the build continues your repayments start to climb. Once you’re through about 80% of the build, you will really feel the difference in your available spending. That is when being a bit more intentional with your budgeting really helps.

How much deposit — and what help exists?

For owner-occupied new builds, a 10% deposit is common. For new-build investors 15% is typical. There’s also a helpful angle if you want to make your money work harder: if you build a home with an attached minor dwelling and live in the larger dwelling, some lenders will still treat it as owner-occupied, which can mean the 10% threshold applies. This surprised me when I was talking with Ollie; most people only hear about options like this when they’re working with a mortgage advisor who can tailor the advice.

On help, many first-home buyers can use a KiwiSaver first-home withdrawal. With a new build, the practical reality is that KiwiSaver funds are usually applied to the land settlement rather than to progress payments on the build itself. In other words, you generally can’t dip into KiwiSaver to cover your build deposit or a stage invoice. If you’ve gone unconditional on a house-and-land package where the land doesn’t yet have title and most of your deposit is coming from KiwiSaver, your advisor and solicitor will structure the timing so the build deposit is still paid when it needs to be, and the KiwiSaver funds land at settlement once title is issued. Tell your advisor early if KiwiSaver is doing the heavy lifting so they can line everything up, and allow time for the withdrawal to be processed. It’s another great reason to work with an advisor who is proactive and on your team.

Avoiding budget blowouts

Let’s reframe this quickly. Instead of “avoiding” blowouts, which sounds like we’re hoping, think “managing” them, because that’s realistic and empowering.

With clear planning and the right team, overruns don’t have to be the norm. In Canterbury, the big unknown is usually groundworks and foundations. The good news is we can often scope those risks with reasonable accuracy based on experience in local developments. Many banks also allow a contingency, often around ten percent that can be accessed for genuine unforeseen items like deeper dig-outs or extra engineering on your slab. That contingency isn’t a free-for-all; it’s generally reserved for unforeseen costs, not elective upgrades.

I get it, you’re building a home. At the start you’re firm: clear budget, clear priorities Then design kicks off and suddenly everything feels possible. A tap upgrade is “only a couple of hundred.” The nicer handle set is “not much in the scheme of things.” Under showroom lights, a bolder tile looks irresistible. One or two changes feel harmless; fifteen later, you’re asking, “How did we get here?” That feeling is completely normal. The fix isn’t to kill all joy; it’s to add just enough structure that you stay in control while you choose things you’ll love living with.

What helps in practice is simple. Keep a running total of upgrades as you go so nothing sneaks up on you. Separate must-haves from would-likes early and stick to it. Give yourself a 24-hour pause on non-essential changes so you can sanity-check the cost in daylight. Do a quick weekly check-in with your advisor or your own spreadsheet so the numbers stay real, not fuzzy. Decide your top two or three “splurge” items up front, then let the rest serve the budget.

My number-one tip: run potential variations past your advisor before you say yes. They’ll show you the best way to make it work with your lending.

Fixed-price contracts: what does it actually mean?

“Fixed price” should mean certainty, and banks like it for exactly that reason because it’s safer for affordability testing. But fixed price does not automatically mean “everything” is included. Your addendum is the most important document you’ll read in this whole process. The fixed price is tied to those inclusions.

Commonly missed items include landscaping, blinds and curtains, the mailbox, and enough concrete for driveways, patios and paths. Sometimes there’s also a very rigid colour or product selection. None of this is a reason to panic. It’s simply a reason to read carefully, ask questions, and be clear on how provisional sums and variations are handled.

At Triangular Homes, we don’t believe in a one-size-fits-all approach. We focus on helping you understand exactly what’s included and excluded in your contract so the scope fits your budget, goals, and risk comfort.

“Keep it simple. Know what you’re getting. More advice beats no advice.” — Ollie Sheremetov

Mortgage advisor quick wins

Ollie’s advice was refreshingly simple. Keep it simple. If this is your first home, don’t overthink it and don’t over-spec it. Build something you can see yourself living in for the next two to five years; chances are you’ll get the itch again, and the next time you’ll be in a stronger position to add more of the “would-likes”.

Speak with a mortgage advisor as early as you can, even if you’re not quite ready to secure land. A good advisor will assess where you’re at and help line things up so you get there faster. Don’t spend your budget to zero; keep a buffer for chosen upgrades or finishing costs, and use it to give yourself breathing room when end-of-build repayments peak. Know your exclusions before you sign anything, and make sure the bank has your most up-to-date progress payment schedule if your contract changes.

Your next step

By now you should have a clear feel for how construction loans actually work. The theme running through all of this is simple: the more you plan, the more you know, and the better your experience will be. Use the people in the industry as a resource. Ask the questions. Let their expertise help you build the home you want.

After an afternoon picking Ollie’s brain, even I walked out more informed than I walked in, and I thought I knew construction loans inside out. If building is on your mind, I genuinely recommend reaching out to a mortgage advisor like Ollie to see what your options look like and what steps will get you onto the ladder.

If you’d like a chat about your Canterbury build, finance conversations included, I’m here to help.

Finance insights informed by a conversation with Ollie Sheremetov (shared with permission). Specific lender rules can vary, so please confirm details with your advisor.