Progress Payments Explained: Financing Your New Build

Financing a home that does not yet exist requires a different lending approach from buying one that is already standing. If you are building a new home or purchasing a property under a standard build contract where construction is underway, your lender will typically advance funds in stages tied to construction milestones. These are known as progress payments, and understanding how they work will help you manage your finances and expectations throughout the build process.

What Are Progress Payments?

A progress payment loan is a facility where your mortgage is drawn down incrementally as construction reaches agreed milestones rather than in a single amount at settlement. Typical milestones include completion of the foundations, completion of the frame, completion of roofing and cladding, completion of internal fit-out, and final practical completion. At each milestone, your builder submits a payment claim, and the lender releases the next tranche of funds. This process protects both the lender and the borrower by ensuring that money is only advanced for work that has actually been completed.

How Interest Is Charged

One of the most important features of a progress payment loan is that interest is only charged on the funds that have been drawn down, not on the full loan amount. In the early stages of construction, when only a portion of the total loan has been released, your interest cost will be lower than it will be by completion. This means your repayment obligations increase gradually as the build progresses. However, it also means you may need to manage housing costs, such as rent, at the same time as making interest repayments on the drawn-down portion. Budgeting carefully for this overlap is important.

The Pre-Approval and Drawdown Process

Getting a mortgage for a new build typically begins with a conditional pre-approval based on the building contract and consent documentation. The lender will want to review the builder's credentials, the building contract, council consent, and a valuation of the projected completed property. Once construction begins, each drawdown request is accompanied by progress certificates from the builder and, in most cases, an independent inspection to verify that the claimed work has been completed to the required standard. This process can take time, so it is important that your builder is aware of the documentation requirements and allows for realistic turnaround times.

Fixed Rates and Progress Payments

Locking in a fixed rate during a construction period introduces some complexity. If you commit to a fixed rate before the loan is fully drawn down, you may end up paying a higher rate on funds that are sitting uncommitted, or you may need to manage break costs if the construction timeline extends. Some borrowers prefer to remain on a floating or construction loan rate during the build and then refix the full amount at practical completion. A mortgage adviser can help you weigh the trade-offs between rate certainty and flexibility during the construction phase.

What Can Go Wrong

Progress payment lending exposes borrowers to risks that do not exist with a standard purchase. Construction delays push out your timeline and can affect your interim living arrangements and budget. If the builder faces financial difficulty or the project stalls, your lender will need to reassess the situation. It is also possible for the final valuation at completion to come in below the contracted price if market conditions have shifted, which may affect the total amount the lender is willing to advance.

At Chaperone, we work with borrowers through the full lifecycle of new build financing, from pre-approval to the final drawdown at practical completion. The process involves more coordination than a standard purchase, but with good preparation and clear communication between you, your builder, and your adviser, it is very manageable. A mortgage adviser familiar with construction lending can help you avoid the common pitfalls and keep your build on track financially.