What is a construction loan and how does it work in NZ?
Short answer
A construction loan is a mortgage product designed for building rather than buying. Instead of one lump sum, the bank releases funds in stages as the build progresses — usually after each council inspection or progress claim. You only pay interest on what's been drawn down. At completion the loan converts to a standard mortgage. All four big banks plus most second-tier lenders offer them, with similar core mechanics but different fee structures.
Source: Reserve Bank of NZ — construction lending guidance. Updated May 2026.
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Check a builderKey facts
- Drawdowns happen at fixed stages (foundation, frame, lockup, finished)
- Interest charged only on drawn amounts
- Bank requires fixed-price contract from a registered builder
- Most banks limit to 80% loan-to-value during construction
- Conversion to standard mortgage at CCC issue
The drawdown structure
Typical schedule: 10% deposit, 15% at foundation completion, 25% at frame stage, 25% at lockup (roof and weathertight), 20% at fit-out, 5% at CCC. Each drawdown usually requires a valuer or QS sign-off.
Banks send a valuer to verify each stage. Schedule slips can delay drawdowns and put pressure on the builder's cashflow.
What the bank checks before lending
Fixed-price contract from a builder with a recognised quality signal (Master Build, NZCB, or established trade history). Master Build Guarantee or Halo policy issued. LBP licence. Plans and consent in place. Resource consent if needed. Geotech report.
Banks vary on which guarantees they'll accept. ANZ and BNZ both want a strong quality signal; Westpac and ASB are similar; second-tier lenders sometimes more flexible but at higher interest rates.
Common pitfalls
Variations pushing the build over the loan limit — banks usually require you to fund excess from cash, not increase the loan mid-build.
Builder delays causing interest to accumulate beyond the agreed build period — most loans have a hard cap on construction window (12-18 months); going over triggers re-application.
Drawdowns being held up because the builder hasn't signed off interim PS3s or the inspection didn't happen.
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Related questions
Sources: Reserve Bank of NZ — construction lending guidance; ANZ / BNZ / Westpac / ASB construction loan product disclosures. General information for NZ homeowners, not legal advice. Building rules change and vary by council, so confirm critical details on the official source before acting. Last updated 2026-05.