Your builder wants $90,000 by Friday. Your bank hasn't released a cent. If you're building your first home, that moment is exactly what construction loan progress payments exist to prevent, and almost nobody explains them properly before contracts are signed.
The take worth knowing in 2026: since APRA's debt-to-income caps went live on 1 February 2026, construction loans and new builds are exempt, and the 12 May 2026 federal budget kept full negative gearing only for new builds. Building isn't just a lifestyle choice anymore. It's the structurally favoured way to enter the market.
The timing matters too. The RBA sits at 4.35% after hikes in February, March and May 2026, and the next decision lands on Tuesday 11 August 2026. Rising rates thin out the buyer crowd, which cuts both ways for builders: fewer signed contracts means construction firms are hungrier, tenders are sharper, and buyers who are prepared hold more negotiating power than they've had since 2023. Less competition. More leverage. A genuine preparation window.
How do construction loan progress payments actually work?
A construction loan is approved as one amount but released in slices. You don't get the money on day one. Instead, the lender pays your builder directly at fixed milestones, called progress payments (or drawdowns), as each stage of the build is finished and inspected.
Five stages are standard under most Australian fixed-price building contracts:
| Stage | Typical % of build contract | What's actually done |
|---|---|---|
| Base / slab | 15% | Site cut, footings, slab poured |
| Frame | 20% | Frame up and approved |
| Enclosed (lock-up) | 25% | Roof on, walls clad, windows and doors in |
| Fixing | 20% | Plaster, kitchen, bathrooms, internal fit-out |
| Practical completion | 15% | Painting, finishing, final inspection |
The builder's initial deposit (usually 5%) typically comes from your own funds before the loan starts drawing. Percentages vary slightly by state and contract, so check yours against the schedule above.
The part that saves you real money: during construction you pay interest only, and only on what's been drawn. When the slab is down, you're paying interest on the land plus roughly 15% of the build cost, not the whole approved loan. On a typical nine-month build that structure can keep around $10,000 of interest in your pocket compared with borrowing the full amount up front.¹
One thing we've seen repeatedly: lenders don't release a progress payment until their valuer or inspector confirms the stage is complete, and a builder invoicing ahead of schedule is one of the most common causes of mid-build friction. A good broker spots that invoice pattern before it stalls your build.
Why did building just become the favoured path?
You've been told buying established is the safe option. In 2026, the rulebook says otherwise.
Start with APRA. From 1 February 2026, lenders can write no more than 20% of new owner-occupier and investor loans at a debt-to-income ratio of six or above. It's the first time those caps have ever been activated, and they're already squeezing borrowers at the margin. Construction loans and new builds are exempt. The full detail is in our guide to APRA's DTI limits, but the chain of consequences runs like this: the caps bite hardest on stretched borrowers buying established homes; lenders ration those high-DTI spots carefully; a borrower declined for an established purchase at 6.2x DTI may still be approved for a comparable house-and-land package, because the construction loan never counts against the lender's cap. Same income. Same debt. Different answer.
Then the tax side. Under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, negative gearing against wages is restricted to new builds for property acquired after 7:30pm AEST on 12 May 2026. Existing holdings keep their negative gearing, and from 1 July 2027 losses on newly bought established properties are quarantined: still deductible against rental income and the eventual capital gain, just not against a salary. You might be building a home to live in, not an investment, but the second-order effect still reaches you: investor demand now tilts hard toward new builds, which deepens the future buyer pool for the home you're constructing today. The established market lost a tax advantage. New builds kept it.
Stack on the state incentives. Queensland abolished stamp duty for first home buyers building new, with no price cap, while South Australia charges first home buyers no duty on new homes, uncapped since 2024-25. The ACT scrapped all first home buyer duty from 1 July 2026. Rarely has building carried this much policy support.
What do the payments look like in real dollars?
Meet Mia and Josh, first home buyers building in Ripley, south-west of Brisbane: $330,000 for the land, $450,000 fixed-price build contract, $780,000 all up.
Their land loan settles first and starts accruing interest immediately. Then the build draws down in slices:
- Base: $67,500 released once the slab passes inspection
- Frame: $90,000 at frame approval
- Enclosed: $112,500 when the house hits lock-up
- Fixing: $90,000 after internal fit-out
- Completion: $67,500 at handover, after the final inspection
During the nine-month build they pay interest only on the drawn balance. In month two that's the land plus $67,500, not $780,000. Their repayments step up as each stage releases, then convert to full principal-and-interest once the keys are handed over. As first home buyers building new in Queensland, they also pay zero stamp duty on the package, a saving north of $20,000 compared with an established home at the same price.¹
¹ Based on typical scenarios, assuming an indicative 6.0% p.a. variable rate as at July 2026; comparison rates and actual pricing vary by lender and loan. Individual outcomes vary.
How much deposit do you need to build?
Less than most people assume, and the old 20% benchmark is not the rule anymore. Through Wity, any borrower can go to 85% of the total package (land plus build) with no LMI. Nurses, midwives, allied health professionals and senior professionals can go to 90%. Doctors and dentists can build with just 5% down, no LMI, under our medico policy. On a $780,000 package like Mia and Josh's, the LMI waived at 85% typically runs $10,000 to $15,000, money that would otherwise be added to the loan and compound for 30 years.
Government support stacks on top. The Australian Government 5% Deposit Scheme (formerly the First Home Guarantee) has had no income caps and no place limits since 1 October 2025, and it covers house-and-land packages under each state's price cap ($1 million in Queensland, $1.5 million in NSW). Our deposit guide walks through how the pieces combine for your state.
One construction-specific catch. Lenders assess your deposit against the total package cost, and the land usually settles months before the build finishes, so your cash needs to be ready earlier than an established purchase would demand. Budget for site costs, too: rock, fill and drainage variations are the classic blowout, and a valuer can mark down a tender that doesn't itemise them.
How do you get approved before the slab is poured?
Approval for a construction loan runs on paperwork an established purchase never asks for: a fixed-price building contract, council-approved plans, specifications, and an "on completion" valuation where the lender values the finished home before a single brick exists. If that valuation comes in under land plus build cost, your loan gets resized. This is where preparation beats enthusiasm.
Start with pre-approval before you sign anything with a builder or a land developer. Construction serviceability is quirky: some lenders assess you on the full approved amount from day one, others on the progressive balance, and the gap between the two treatments can swing your capacity by tens of thousands. The Wity Borrowing Power Assessment models your build across 45+ lenders rather than one bank's calculator, which is how a couple declined at their own bank for a $780,000 package discovers three other lenders who'd approve it, DTI exemption and all.
Complex builds, medico incomes, house-and-land packages with staged settlements: this is the territory where broker structuring earns its keep. It's also covered step-by-step in our first home buyer guide for 2026.
What should you do this month?
The window is unusually clear. Rates are high enough to keep competition thin, builders are negotiating, the DTI exemption is live, and the spring land releases haven't hit yet. Buyers who sort finance in July and August walk into September with signed pre-approval while the crowd is still reading headlines about the 11 August 2026 RBA meeting.
If building is on your radar, get your numbers modelled first and choose your builder second. Start the Wity questionnaire → — free, no credit check, two minutes.