Deconstructing construction loans

When it comes to building new, there are a few different types of construction contracts available and it’s important to pick the right one.

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Construction worker hammering a nail on a new build house

How does it work?

Our job is to make the whole process simple and save you money. Our team of mortgage brokers will give you personal, impartial advice. And you’ll get a great rate too.

We’ll chat about what you’re wanting to achieve, provide expert advice and guide you through the process, then approach the right lender for your situation to get you the best deal.

We've written close to $1 billion of loans in the last year – helping out a lot of Kiwis in the process. So when it comes to getting the best solution for your dream home, we can help.

What are the different types of contracts?

Squirrel HomeBuild

This finance product is exclusive to us. It’s for owner-occupied properties and is available for loans with as little as five percent deposit. Pay nothing else til the build is complete and no progress valuations. Builders love it too because they still get paid in stages. Read more

Turn Key 

This is beneficial to the client but can be tricky for the builders. It’s essentially a fixed price contract between you and the builder that specifies a fully completed property or renovation, down to the fine details. No payments are required until the property has been completed. Read more

Land and build contract

This is similar to the turn key contract, but there are progress payments involved. Naturally builders are keen on this contract. Think of it as a ‘pay as you go’ approach. Read more

Labour only/partial contract

this one’s a bit more complicated so we wouldn’t recommend you sign one without some advice, or experience in construction contracting. These types of contracts are often used for kitset or relocatable homes. Read more

Man in construction hat looking at plans of house on desk

Why Squirrel?

Advice you can trust

Our experienced mortgage brokers are on salaries rather than relying on commission, which means our advice is reliable and unbiased.

Simplify things

It might seem like a minefield of forms and jargon but it doesn’t have to be. Our expert advisers can cut through the clutter and find the right solution for you.

Save money

Having the right home loan solution in place will save you thousands. We can also help you get mortgage-free faster.

We know all the lenders

Having good relationships with them all means more options for you. 

Hand holding a hammer

Squirrel HomeBuild

Squirrel HomeBuild is the easiest way to finance building a new home, and it takes the hassle out of the process because you don’t service the loan until your home is finished, it’s a disciplined and rigorous process and progress valuations are not required. It’s also available for loans up to 95% of the total cost, making it possible to build with a five percent deposit and nothing else to pay until the house is completed.

Squirrel HomeBuild won’t be the right solution for everyone. In a nutshell, it’s for owner-occupied properties, with reputable builders and needs reliable fixed price contracts with little or no provisional cost sums. The registered valuation must also equate to the total project price. We have a panel of bank lenders who work with us to provide this loan. Your adviser will let you know if it's right for you, and if it isn't, we can still easily pull together a financing solution that works best for you.

Child wearing construction hat, building home with building blocks
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Turn Key Contract

This type of construction loan is beneficial to the client, but it can make it harder for the builders. That's because a turn key contract is essentially a fixed price contract between you and the builder that specifies a fully completed property or renovation, including landscaping, driveways, painting and flooring in the new property.

Things to note:

A turn key contract only allows for minimal ‘PC Sum’ (non-fixed) costs, meaning that the costs shouldn’t blow out once construction is underway.

This contract is exempt from RBNZ (Reserve Bank of NZ) rules. That means you don’t need a 20% deposit - a 10% deposit (20% for investment properties) is required for turn key contracts, and some banks may even stretch to allow 5% in special circumstances, making this an attractive option for those with good income but less savings.

Another advantage to you the client is that until the property has been completed and settled, you don’t make any loan repayments or pay any interest, allowing you additional time to save before you start to pay off the loan.

Land and Build Contract

This is the most common type of construction loan and builders love this type of contract.

Like the turn key, it specifies completion of a ready to live in building with minimal ‘PC Sum’ costs.

Again, like turn key, these loans are exempt from RBNZ policies and therefore banks only require a 20% deposit if it’s an investment property (10% deposit is fine for first home buyers). The big difference is that there are progress payments involved. These progress payments are funds that go to the builder at various stages of the project (outlined in the table). Think of it as a 'pay as you go' approach. You start paying interest on your loan as soon as the first payment is made - which is typically at settlement of the land - and your loan payment increases as each new payment is made. 

Progress payments 

Firstly, a 10% deposit will be required to secure the contract. This is then included in the first drawdown. Normally paid by cash or equity.

The second drawdown tends to be 20% of the total balance of the build contract.

To give you an idea of how the entire payments might typically pan out, the rules of thumb shown in this table can be used.

Land and build contract progress payments

Labour Only/Partial Contract

We wouldn’t recommend you sign one of these bad boys unless you’re relatively experienced in construction contracting and how it all works.

These contracts come in many forms but normally consist of a range of sub-contracts that are managed by either the client or a project manager. There might also be a labour only arrangement with the contractor.

These types of contracts are commonly used in the case of a kitset or relocatable home.

Lending for a labour only or partial contract is limited to the land value only unless the buildings are already permanently fixed to the land. LVR would typically be between 65% - 80% depending on the contract. The bank will also include a 10% - 20% contingency as these loans almost always go over budget. 

Other conditions for labour only / partial contracts:

  • Quotes for materials and subcontractors required up front
  • Progressive drawdowns are made against invoices
  • Valuations for each drawdown stage are required to ensure any cost blowouts are identified early
Back of painter scratching his head, looking ahead.


Not only does buying off the plan require a small leap of faith, it also comes with a whole heap of other lending conditions. Here are some typical conditions to expect in a build loan approval:

  • Sales and Purchase of the land (or the full purchase price if you are going with the turn-key option)
  • Fixed price Master Builders contract
  • Building/resource consent
  • Registered valuation showing the value 'as is' and 'on completion'. Depending on the bank, you may need an updated valuation at each staged payment and again on completion, or you may just need a completion certificate. 
The good news is that the team at Squirrel are here to help.

So get in touch with one of our advisers today. 

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