Building and house and land finance
Construction loans work differently from ordinary home loans, and in Melbourne’s north a great many first purchases are house and land. The mechanics matter, because the things that go wrong are almost always timing.
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Why this matters here specifically
Across Mickleham, Kalkallo, Donnybrook, Wollert and Beveridge, buying land and building is a common path rather than the exception. That makes construction finance an everyday part of lending here rather than a specialty.
It also means most buyers in this corridor are dealing with a loan structure they have never encountered, on a timeline measured in years rather than weeks.
How a construction loan actually works
An ordinary home loan advances the full amount at settlement. A construction loan does not. It releases money in stages as the build progresses, and you pay interest only on what has been drawn.
The typical stages:
- Land settlement — the land portion is advanced when the land settles
- Base or slab — foundations laid
- Frame — structural frame complete
- Lock-up — external walls, windows and doors in
- Fixing — internal fit-out, cabinetry, plaster
- Practical completion — the build is finished and handed over
At each stage the builder invoices, the lender usually inspects or values, and the payment is released directly to the builder.
What this means for you: your repayments start small and grow through the build. If you are renting at the same time, you are carrying both — and the loan repayment is rising each month. Budget for the position at the end of the build, not the beginning. The construction loan calculator shows each stage, the rent alongside it, and the month it peaks.
The timing problem
This is the thing that catches people, and it is worth being blunt about.
Land in a new estate frequently settles a long time after you sign. Twelve months is common. Eighteen or twenty-four is not unusual. Titling depends on civil works, council approval and the developer’s program — none of which you control, and all of which slip.
Loan approvals do not last that long. A formal approval typically holds for three to six months. So the approval you get when you sign is not the approval that funds your land.
What actually happens is that you are reassessed close to titling. Against:
- Your income and employment at that time
- Your expenses and commitments at that time
- The lender’s credit policy at that time
- Interest rates and assessment rates at that time
If anything has moved against you — a job change, a new car loan, a baby, a policy tightening, a rate rise — the approval you were counting on may not be there.
How to manage it
- Do not take on new debt between signing and settlement. A car loan taken out during the wait is the most common single cause of a failed settlement in this corridor.
- Keep your deposit and savings intact and visible. Lenders look at genuine savings and at conduct.
- Tell your broker early about any change — a job move, a pay structure change, going part-time. Some of these are manageable if known in advance and fatal if discovered at reassessment.
- Build a buffer. Rates, valuations and policy all move. A settlement plan with no margin is a fragile one.
Stamp duty and two-part contracts
Stamp duty on a land transfer is generally assessed on the value being transferred.
Where a house and land package is structured as two contracts — one for the land, one for the build — duty is generally calculated on the land value alone, not the completed house and land total.
On a package where the land is a fraction of the total price, that is a very large difference.
Where the arrangement is a single contract for a completed home, duty is generally assessed on the whole amount.
This depends on how the contracts are actually drawn and on the specific circumstances, and the State Revenue Office sets the rules. It is worth understanding the structure of what you are signing, and getting advice on it, before you sign rather than after.
First home buyers may also be eligible for duty exemptions or concessions, and the First Home Owner Grant applies to new homes — which is exactly what is being built here. See first home buyers.
See what duty looks like on your figures. The stamp duty calculator covers every state, with Victorian first home buyer relief applied where it fits.
Valuation risk
The lender lends against its valuation, not your contract price.
In an established suburb, contract and valuation are usually close because there are comparable recent sales. In a new estate, where you signed eighteen months before settlement and the comparable sales are all from the same developer, they can diverge.
If the valuation comes in low:
- The shortfall is cash you have to find at settlement, or
- Your loan-to-value ratio rises and lenders mortgage insurance may apply, or
- The loan may not proceed on the terms you expected
Different lenders use different valuers and can reach materially different figures on the same property. Which lender you go to genuinely matters here.
Choosing a builder, from a finance perspective
Lenders care about the builder, not just about you. Before you sign a building contract:
- Registration and insurance — the builder must be registered with the Building and Plumbing Commission, and the home covered: by Home Warranty for contracts signed from 1 July 2026, or domestic building insurance before that
- A fixed-price contract in a form the lender accepts. Cost-plus contracts are treated with suspicion and some lenders will not fund them
- A realistic progress payment schedule. Front-loaded schedules — large payments early relative to work completed — are a red flag to lenders and to you
- What is actually included. Site costs, driveways, landscaping, fencing, window coverings and floor coverings are frequently excluded from the headline price. These are real costs and they usually have to be funded from your own pocket rather than from the construction loan
That last point causes more budget pain than anything else. The advertised package price and the amount you need to be living in the house are rarely the same number. The house and land contracts guide goes through what to check in both contracts before you sign.
A realistic order of operations
- Get your borrowing capacity assessed before you sign anything
- Understand the contract structure — one contract or two, and what it means for duty
- Confirm what is and is not included in the build price
- Get formal approval for land, with the titling timeline understood
- Protect your position through the wait — no new debt, savings intact
- Reassess before titling, with enough lead time to fix problems
- Settle the land, then move to construction drawdowns
- Budget for rising repayments through the build, plus rent if applicable
- Fund the exclusions — landscaping, fencing, blinds, floors
None of this is a reason to avoid building. It is the most affordable path into a home for a lot of people in this corridor. It just rewards planning far more than an established purchase does.
Sources
Scheme, grant and duty figures on this page come from the authorities below. These change — check the current position before relying on it.
Common questions
What is a two-part contract and why does it matter?
A two-part contract splits a house and land package into a land contract and a separate building contract. Because stamp duty on a land transfer is generally calculated on the value being transferred, duty is usually assessed on the land alone rather than on the completed house and land total. On a typical package that difference can be many thousands of dollars. The structure depends on how the contracts are actually drawn, so it is worth understanding before signing rather than after.
My land will not title for 18 months. Can I get finance now?
You can get an approval now, but it will not last that long — approvals typically expire in three to six months. In practice you are reassessed closer to titling, against whatever your circumstances and lending policy look like at that point. This is the single biggest risk in a growth corridor purchase and it needs planning for, not hoping about.
Do I pay full repayments while the house is being built?
Generally you pay interest only on the amount drawn down so far, which increases as each progress payment is made. Many lenders allow interest-only during construction, moving to principal and interest at completion. If you are also paying rent during the build, budgeting for that rising interest cost matters.
What happens if the valuation comes in under the contract price?
The lender lends against its valuation, not your contract price. If the valuation is lower, the shortfall becomes cash you need to find, or the loan-to-value ratio rises and lenders mortgage insurance may apply. In new estates where a long gap separates signing from settlement, this is a real risk worth planning for rather than assuming away.
Can I use my own builder?
Usually, provided they are registered, appropriately insured and will work to a fixed-price contract in a form the lender accepts. Lenders are cautious about cost-plus contracts and about owner-builder arrangements, and some will not fund them at all.
Have a question about your situation?
A first conversation costs nothing and commits you to nothing. Even if the answer is "wait six months", you will know why — and what to do in the meantime.