Construction Finance in Australia — How Construction Loans Work in 2026

Construction finance is the specialist lending that funds the physical build of property developments. It is distinct from a standard mortgage in almost every way: funds are released progressively, interest is capitalised during the build, and the credit assessment centres on the project's feasibility rather than a borrower's income.

For developers, understanding construction finance — its mechanics, terminology, and lender landscape — is not optional. It is the difference between a funded project and a stalled one. Evcorp Commercial arranges construction finance from $5M to $100M+ across 60+ lender relationships.

How Construction Loans Work

A construction loan operates on a fundamentally different model from a residential mortgage or a commercial investment loan:

Progressive drawdown. Funds are not released as a lump sum at settlement. They are drawn progressively — called progress draws or progress payments — against certified construction milestones. The developer pays interest only on the drawn amount, not the full facility limit.
Capitalised interest. Interest during construction is almost always capitalised — added to the loan balance — rather than paid monthly. This preserves the developer's cash flow during the build phase when there is no income from the project.
QS certification. Each progress draw requires a Quantity Surveyor's certificate confirming the milestone has been reached and the work completed accords with the construction contract. The QS acts as an independent verifier for the lender.
Retention. Lenders typically withhold a retention amount (5–10% of each draw) until final certification, providing a buffer against cost overruns or defects.

The Progress Draw Schedule

A typical residential construction project follows a 5–6 stage draw schedule:

Deposit / Commencement: 5–10% of facility — mobilisation, site establishment
Slab Down: ~15% — concrete slab poured and cured
Frame Complete: 15–20% — structural frame erected, roof on
Lock-Up: 20–25% — external walls, windows, doors, roofing complete — building is weatherproof
Fit-Out: 15–20% — internal linings, joinery, services rough-in, waterproofing
Practical Completion: Final 5–10% — all works complete, occupancy certificate issued, defects rectified

Key Construction Finance Metrics

LVR (Loan to Value Ratio) vs LTC (Loan to Cost)

LVR expresses the loan as a percentage of the completed property value (Gross Realisation Value, or GRV). A $14M loan on a project with a $25M GRV has a 56% LVR.

LTC expresses the loan as a percentage of total project cost (land + construction + professional fees + holding costs + finance costs). A $14M loan on a project with $20M total costs has a 70% LTC.

In practice, LTC is the more commonly used and conservative metric. Senior construction lenders cap their exposure at 70–80% LTC. Senior banks typically cap at 65–70% LVR and 70% LTC. Non-bank stretch senior lenders may extend to 75–80% LTC.

The Australian Construction Lender Landscape

Major Banks

ANZ, CBA, NAB, Westpac. Lowest pricing (BBSY + 2.00%–3.75%) but most conservative: 65% LVR/LTC, 100% presale debt cover, strong preference for residential apartments and townhouses in core metropolitan locations, strong developer track record required.

Mid-Tier and Regional Banks

Bendigo, Suncorp, Bank of Queensland, ME Bank, Judo Bank. Slightly more flexible than majors on presales and location. Pricing: BBSY + 2.50%–4.00%. LVR: 65–70%.

Non-Bank Senior Lenders

Qualitas, MaxCap, Metrics, Merricks Capital, Wingate, and others. More flexible on presales (80–100% debt cover typically), faster credit processes, and more comfortable with commercial, industrial, and mixed-use projects. Pricing: BBSY + 3.00%–5.00%. LVR: 65–75%.

Stretch Senior and Mezzanine Providers

Private credit funds and family offices providing leverage beyond 70% LTC. Stretch senior: BBSY + 3.50%–5.50%. Mezzanine: 14–22% p.a. Combined leverage up to 85–90% LTC.

Construction Finance Pitfalls to Avoid

Underestimating total project cost. The single most common cause of construction finance stress. Build in a 10–15% contingency above the builder's contract price — lenders will.
Starting without a QS. An independent Quantity Surveyor is mandatory for most construction lenders. Engage one at the design stage, not when the lender asks.
Failing to align the facility term with the build program. A 12-month facility on an 18-month build will create a refinancing crisis at the worst possible moment. Build in buffer.
Not engaging a broker at feasibility stage. The optimal capital structure and lender are determined at the feasibility stage — not when the DA is approved and the clock is ticking. Early broker engagement consistently produces better outcomes.

Why Evcorp Commercial for Construction Finance

Evcorp Commercial was founded by a former commercial banker who understands construction lending from the credit committee's perspective. The firm's whole-of-market access across 60+ lenders — banks, non-banks, private credit funds, and family offices — ensures every construction mandate is placed with the optimal capital provider. Direct senior dealings mean the principal who structures your facility is the person who gets it through credit.

Frequently Asked Questions

How does a construction loan work in Australia?

A construction loan funds the build phase of a property development. Unlike a standard mortgage that releases the full loan amount at settlement, a construction loan releases funds progressively — in stages called progress draws — as the builder completes and certifies each construction milestone (slab, frame, lock-up, fit-out, completion). The developer pays interest only on the amount drawn, not the full facility limit. Interest is typically capitalised (added to the loan balance) rather than paid monthly, preserving cash flow during construction. Facilities run 12–24 months for standard residential projects.

What is the difference between Loan to Value Ratio (LVR) and Loan to Cost (LTC)?

LVR measures the loan against the completed property value (gross realisation value, or GRV). LTC measures the loan against the total project cost (land + construction + fees + interest). Construction lenders use both: senior debt is typically capped at 65–70% LVR and 70–80% LTC. A $20M project with a $25M GRV and a $14M senior loan would have a 56% LVR and 70% LTC. LTC is the more conservative and commonly used metric in practice.

What are progress draws or progress payments in construction lending?

Progress draws are the staged release of loan funds against certified construction milestones. A typical residential project has 5–6 draws: deposit/commencement (5–10%), slab down (15%), frame complete (15–20%), lock-up (20–25%), fit-out (15–20%), and practical completion (final 5–10%). Each draw requires a Quantity Surveyor's progress certificate confirming the milestone has been reached. The lender withholds a retention amount (typically 5–10%) until final certification.

Do construction loans require presales in Australia?

Yes — presales are a standard credit requirement for residential construction finance. Major banks typically require 100% debt cover (presale proceeds equal or exceed the loan amount). Non-bank senior lenders typically require 80–100% debt cover. Presale requirements vary by project type (apartments typically require higher cover than townhouses), location (core metropolitan vs regional), and developer track record. Evcorp advises on the optimal presales strategy and identifies lenders with the most favourable presale requirements for each project.

What interest rates apply to construction loans in Australia?

Senior construction debt from major banks prices at approximately BBSY + 2.00%–3.75%. Stretch senior from non-bank lenders: BBSY + 3.50%–5.50%. Mezzanine: 14–22% p.a. Rates are floating (BBSY-based) for most construction facilities, though some non-bank lenders offer fixed-rate tranches. Establishment fees, line fees, and legal costs apply in addition to the margin. Evcorp's competitive multi-lender process ensures market-competitive pricing.

Can Evcorp arrange construction finance for commercial and industrial builds?

Yes. Evcorp arranges construction finance for all asset classes: residential (apartments, townhouses, detached housing), commercial (office, retail, mixed-use), industrial (warehouses, distribution centres, manufacturing), and specialised assets (healthcare, aged care, childcare, education). Whole-of-market access to 60+ lenders including specialists in each asset class.

What can a construction loan be used for?

A construction loan funds the hard and soft costs of building: construction contract payments, consultants, council and authority fees, holding costs during the build and capitalised interest. Land is usually funded by a separate land or land bank facility, or by the construction facility if the land is already held. Funds are drawn progressively against milestones certified by an independent Quantity Surveyor.

How much can I borrow on a construction loan?

Senior lenders typically fund 65–70% of the project's end value (LVR) or 70–80% of total development cost (LTC), whichever is lower. Stretch senior extends to 75–80% LVR. Mezzanine and preferred equity can lift combined leverage to 85–92% of total development cost. The sponsor funds the balance as equity.