15 May 2026 Construction Loans in South East Melbourne: Your 2026 Guide
Building in South East Melbourne gives you something the established market rarely delivers: complete control. Whether you’re knocking down and rebuilding in Toorak – Glen Iris or starting fresh on a block in Cheltenham, construction finance lets you build exactly what you want without paying interest on the full amount from day one.
The advantage of building in the current market is control over design, materials, energy efficiency, and timing. Construction loans release funds progressively as your build reaches each stage, so you only pay interest on what has been drawn down, not the total loan amount sitting unused.
EverLend helps South East Melbourne homeowners compare construction loan options across 60+ lenders, completely free of charge.
Here’s what you need to know about construction finance before approaching a lender.
Key takeaways
- Construction loans release funds in stages; you pay interest only on amounts drawn down.
- First home buyers can build with a 5% deposit using the First Home Guarantee (up to $950,000).
- Lenders require a fixed-price contract, council approvals, and a licensed builder before final approval.
How does a construction loan work?
A construction loan releases funds in stages as your build progresses, typically across five or six progress payments that align with completed phases of the work. You only pay interest on the amount that has been drawn down, not the full loan sitting in an account. Once construction completes, the loan typically converts to a standard home loan with principal and interest repayments.
Your exact drawdown schedule depends on your builder’s progress payment structure and your lender’s inspection requirements, which is what we work through with you before you commit to any lender.
What government schemes help with building costs in South East Melbourne?
Schemes available to South East Melbourne builders:
- ›Victorian First Home Owner Grant: $10,000 for eligible first home buyers building new homes with a contract price of $750,000 or less. New builds only, administered by the State Revenue Office.
- ›First Home Guarantee (5% Deposit Scheme): build with a 5% deposit and no LMI, up to a $950,000 total value including land and construction costs. Income caps and place limits were removed in October 2025.
- ›Victorian off-the-plan stamp duty concession: reduces dutiable value by excluding construction costs, available to all buyers. The concession applies to contracts entered into before 21 April 2027 (extended in the May 2026 State Budget, subject to legislation). Confirm the current end date with the State Revenue Office before relying on it.
- ›Help to Buy scheme: the federal shared equity scheme contributes up to 40% equity for new builds. Income caps apply ($100,000 for singles, $160,000 for couples and single parents). Must not have previously owned property in Australia. Cannot be combined with the First Home Guarantee.
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How do mortgage brokers help with construction loan approval in South East Melbourne?
Step 1: Talk to us
Get in touch and we’ll assess your building plans, deposit position, and income to determine which construction loan structure suits your project and budget.
Step 2: Compare construction loan options
We identify lenders whose construction loan products match your deposit, income assessment, and build timeline. Interest-only terms, conversion requirements, and progress payment structures vary significantly between lenders.
Step 3: Secure pre-approval for land purchase
If you need to buy land first, we arrange finance for the land component, then structure the construction loan to activate once building commences. This prevents double financing and reduces holding costs.
Step 4: Finalise construction loan approval
Once you have final building plans, council approvals, and a fixed-price building contract, we submit for formal construction loan approval. Most lenders require these three documents before final approval.
Step 5: Coordinate drawdowns
We work with your builder and lender to coordinate each progress payment. Your builder requests each drawdown, the lender inspects the completed work, and funds are released to continue the build.
Step 6: Convert to standard home loan
Once construction completes and you receive your occupancy certificate, the loan converts to a standard principal and interest home loan at your agreed ongoing rate and terms.
What mistakes do South East Melbourne builders commonly make with construction loans?
The biggest mistake South East Melbourne builders make is approaching their own bank first. Construction loans are specialist products: not every lender offers them, and those that do have different appetites for project types, loan-to-value ratios, and builder requirements. Your bank might not even write construction loans, or they might be significantly more expensive than alternatives.
The second common error is underestimating the cash flow gap. During construction, you’re often paying rent or mortgage repayments on your current home plus interest on drawn construction funds. Many borrowers forget to factor this double payment period into their budget, which can last 6 to 12 months depending on build complexity.
What do lenders look for in construction loan applications?
Lenders assess construction loans differently from standard home loans because they’re funding a project that doesn’t yet exist. Your builder’s credentials matter as much as your own financial position. Most lenders require the builder to be licensed, insured, and financially stable, with a track record of completing similar projects on time and on budget.
Key documentation lenders require:
- ›Fixed-price building contract: lenders need certainty about the total project cost before approving drawdown amounts.
- ›Council approvals: building permits and development approvals must be in place before construction loan settlement.
- ›Deposit requirements: typically 20% for construction loans, though some lenders accept 10% with appropriate government guarantees.
- ›Income serviceability: lenders assess your ability to service both the construction loan interest and any existing mortgage or rent during the build. With the APRA serviceability buffer at 3.0%, your income is tested at approximately 9% to cover both obligations simultaneously.
~9%
The rate at which lenders currently test your serviceability (actual rate plus the 3.0% APRA buffer), covering both construction interest and any existing repayments.
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Like to know which banks & lenders work best for your construction project? Know where you really stand and what’s possible, so you can plan with total confidence. 5.0 on GoogleLocal expertsFree service
Prefer to talk now? Call 03 7036 3356 |
Frequently Asked Questions
How much deposit do I need for a construction loan in South East Melbourne?
Most lenders require a 20% deposit for construction loans, though the First Home Guarantee can reduce this to 5% for eligible first home buyers. Your deposit covers both the land purchase and construction costs, so the required amount scales with your total project value.
Do I pay interest during construction?
Yes, but only on funds that have been drawn down, not the full loan amount. As each progress payment is released to your builder, you start paying interest on that portion while the undrawn balance remains interest-free until needed.
What happens if my construction loan goes over budget?
If cost overruns occur, you are responsible for covering the extra amount — your lender will not automatically increase the loan. This is why a fixed-price contract with a reputable builder is essential, and most advisors recommend a 10% contingency buffer in your budget.
Can I use a construction loan to renovate an existing home?
Construction loans are for new builds only. Major renovations typically require a personal loan or drawing on equity in your existing property, which works differently and usually requires the work to add measurable value to justify the borrowing.
How long do construction loans take to approve?
Construction loan approval typically takes two to four weeks longer than a standard home loan because lenders need to assess your builder, review building plans, and verify council approvals. Having all documentation ready speeds up the process significantly.
Should I use a mortgage broker or go direct to a bank for a construction loan in South East Melbourne?
A mortgage broker, every time. Construction loans are specialist products: not all lenders offer them, and those that do have vastly different appetites for project types and loan structures. A broker comparison identifies lenders who suit your specific build and gets you competitive terms across 60+ options.
What government support is available for new builds in South East Melbourne?
The Victorian FHOG provides $10,000 for eligible first home buyers building new homes with a contract price of $750,000 or less. The First Home Guarantee allows a 5% deposit with no LMI up to $950,000 total value, with income caps and place limits removed since October 2025. The Victorian off-the-plan stamp duty concession reduces dutiable value and currently applies to contracts signed before 21 April 2027 (subject to legislation).
Your Next Steps
Getting your construction loan structure right from the start affects both your cash flow during the build and your ongoing repayments once you move in. The difference between lenders can be significant: not just in rates, but in progress payment structures, builder requirements, and conversion terms.
The right lender for your construction project depends on your situation, and that’s a conversation worth having. Talk to the EverLend team or call 03 7036 3356, and we’ll compare your options across 60+ lenders at no cost to you.
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External Resources
EverLend · St Kilda and South East Melbourne · General information only – this article does not constitute financial advice. Please consider your own circumstances and seek professional advice before making any financial decisions. · Last updated 16 July 2026