Turn-Key vs Standard Build Contracts: A Borrower's Guide

Not all new builds work the same way from a financing perspective, and the difference often comes down to the type of contract you sign. The two most common arrangements in New Zealand are turn-key contracts and standard build contracts. Each has distinct implications for when you pay, how your loan is drawn down, and what risks you carry during the construction period. Getting clear on these differences before you sign anything can save you from surprises later.

What Is a Turn-Key Contract?

A turn-key contract is one where you agree to purchase a completed property at a fixed price, with settlement occurring only after the home has been built and is ready to occupy. You are essentially buying a finished product. The purchase price is set at the time you sign the contract, and you pay that price in full at settlement, just as you would with an existing home. Your mortgage is drawn down as a single amount on settlement day, and you begin repayments from that point. Because settlement happens after construction is complete, you do not need to manage progress payments or make interim interest payments during the build.

What Is a Standard Build Contract?

A standard build contract, sometimes called a construction contract, involves a more hands-on process. You typically pay a deposit upfront, and then progress payments are made to the builder at agreed construction milestones throughout the build. Your mortgage is drawn down in stages as each payment falls due, which means you begin paying interest on the drawn-down amounts before the property is completed. This structure gives you more visibility into the construction process and more touchpoints with your builder, but it also requires more active financial management during the build period.

Key Differences in Mortgage Terms

From a lending perspective, the two contract types are handled quite differently. Turn-key contracts are treated more like existing property purchases, with a straightforward pre-approval, a single valuation, and a single settlement. Standard build contracts require a construction loan facility, staged drawdowns, and typically more documentation at each milestone. Lenders will want to review the building contract, consents, builder credentials, and may require independent progress inspections before each drawdown. This does not make standard builds harder to finance, but it does require more coordination between borrower, builder, and lender.

Risk Profile for Each Contract Type

Turn-key contracts shift much of the construction risk to the developer or builder. Because you are not settling until the home is complete, you are less exposed to construction delays, cost overruns, or builder insolvency during the build. Your main risk is that the property value at completion may differ from the agreed purchase price, particularly if you signed the contract well in advance and the market has moved. Standard build contracts place more risk with the borrower. If the builder encounters problems, you may face delays, incomplete work, or disputes about progress claims. Having a clear, well-drafted building contract and a builder with appropriate licensing and insurance is essential.

Choosing the Right Structure for You

• Turn-key suits borrowers who want simplicity, a single settlement, and less involvement during construction
• Standard build suits borrowers who want more oversight of the construction process and are comfortable managing staged payments
• Both types may qualify for LVR exemptions and first home schemes that favour new builds, but the specific rules should be confirmed at the time of purchase
• A mortgage pre-approval obtained early gives you confidence about your borrowing capacity before you commit to either type of contract

At Chaperone, we help borrowers understand the financing implications of both contract types before they sign. A mortgage adviser can explain what each approach means for your deposit, your cash flow during construction, and the documentation your lender will require. Getting this clarity early makes the whole process smoother from contract to keys.