Building your own home is exciting but it is also one of the biggest financial decisions you will ever make.
In Victoria there are three separate pieces that must work together:
• your land and building contract with the builder
• your construction loan with the bank or lender
• your legal protection as a consumer under Victorian law and the Australian Consumer Law
This guide explains in simple English how residential construction loans work, how progress stages and payments work, and what your legal rights are at every step.
1. Key Laws that Protect Homeowners
When you build a home in Victoria, several laws protect you as a consumer.
Domestic Building Contracts Act 1995 (Victoria)
This Act regulates domestic building work such as building a new home, major renovations and extensions. It:
• sets rules for domestic building contracts over a set value
• limits deposits and progress payments
• requires written contracts with prescribed information
• implies important warranties about quality and compliance
• provides for dispute resolution through Domestic Building Dispute Resolution Victoria and then VCAT
Section 40 of the Act sets limits on progress payments and defines stages such as base, frame, lock up and fixing.
Australian Consumer Law
The Australian Consumer Law is contained in schedule 2 of the Competition and Consumer Act. It gives you non negotiable consumer guarantees when you engage a builder or building company.
For services the builder must:
• provide services with due care and skill
• make sure the service, and any resulting building work, is fit for the agreed purpose
• provide the service within a reasonable time if no time is specified
These guarantees are in addition to your rights under Victorian building law.
Implied building warranties and insurance
Victorian law also implies statutory warranties into every domestic building contract, even if they are not written into the contract. These include that:
• the work will be carried out with proper care and skill
• materials will be good and suitable
• the home will be reasonably fit for occupation when finished
These warranties benefit current and future owners for up to ten years from completion of the work.
Domestic building insurance is also required above certain contract values to protect the owner if the builder dies, disappears or becomes insolvent.
Your construction loan contract
Your construction loan is regulated by the National Consumer Credit Protection Act and the National Credit Code. That law covers:
• the information the lender must give you
• how interest and fees are charged
• what happens if you fall into arrears
The loan contract sits beside your building contract. The lender pays the builder in stages under the loan, but your legal obligations to the builder are still governed by your domestic building contract.
2. How a Residential Construction Loan Works
Most major banks offer construction loans that operate differently to a normal home loan.
• the bank approves a total loan amount based on the land value and the value of the completed home
• during construction the bank releases funds in stages, known as progress payments
• you usually pay interest only on the amount that has actually been drawn down, not the full loan
• you normally have a set time to make your first draw and a set time, often around twenty four months, to finish construction
Your loan contract or commencement pack from the lender will state:
• total amount available for construction
• your required cash contribution
• the deadline for your first progress payment
• the period allowed to complete the build
3. Building Stages and When Payments Are Made
Typical building stages
The Domestic Building Contracts Act and common industry practice recognise stages such as:
• Deposit stage
• Base stage: land is prepared and foundations laid
• Frame stage: walls and roof frame constructed
• Lock up stage: external walls, roof, doors and windows completed so the home can be locked
• Fixing stage: internal fixtures, plumbing and electrical installation
• Final stage: finishing items such as painting, tiling, cabinetry and practical completion
Your contract must clearly describe each stage and state what is included in that stage.
How progress payments work
Your building contract sets a total price and a schedule that divides that price across the stages. Under Victorian law:
• the deposit is capped (for example five per cent for most larger contracts and ten per cent for smaller contracts)
• progress payments must relate to defined stages and can only be claimed after the relevant stage is complete
Your builder issues an invoice when a stage is complete.
To pay the builder from your loan you normally:
• receive the builder invoice
• sign a progress payment request to your lender
• the lender may arrange a valuation or inspection
• the lender pays the builder directly
4. What You Must Pay and What You Do Not Have to Pay
Deposit
Legally the builder cannot ask for more than the allowed deposit percentage. If they do, that term can be unenforceable and you may have grounds to recover any overpayment. Courts have confirmed that while section 40 does not itself give you a direct claim, you may be able to recover excess payments on other grounds such as unjust enrichment.
Progress payments
Before paying each invoice you should check that:
• any required building inspection for that stage has been passed
• the work at that stage matches the contract plans and specifications
• the stage is actually complete as defined in your contract
Consumer Affairs Victoria guidance says owners should not automatically withhold the full progress payment solely because of non serious defects if the stage is otherwise complete, but you should obtain legal advice before deciding to withhold or part pay.
Variations and extras
If the builder wants to change the work or the price figures, this should be documented in a proper variation that:
• is in writing and signed
• explains the change
• states the price impact and any time extension
You are not required to pay for variations that do not comply with the Act, unless certain limited exceptions apply.
5. Your Rights at Each Stage of the Project
Before you sign anything
You have the right to:
• receive a written domestic building contract that complies with the Act for major work
• have the price, progress payments and specifications clearly set out
• receive the required consumer information documents
• get independent legal advice before signing
• a cooling off period in many domestic building contracts
At this stage we can review your draft contract and loan approval side by side and negotiate special conditions that protect you.
During construction
You have the right to:
• insist that the builder obtains building permits and arranges mandatory inspections
• attend the site at reasonable times or through your inspector
• require work to match the approved plans and specifications
• have variations recorded in writing
• have progress payments limited to the stages and percentages allowed by law
If the builder is late, the contract will usually allow extensions of time for some causes such as extreme weather or delays outside the builder control, but not for simple poor management. Disputes about extension of time can be referred to Domestic Building Dispute Resolution Victoria.
After completion
You have the benefit of:
• statutory warranties for structural and non structural defects for up to ten years in Victoria
• consumer guarantees under the Australian Consumer Law for services provided without due care and skill or not fit for purpose, which may allow you to claim even when other time limits have passed
If defects appear, you can:
• give the builder a written notice listing the issues and a reasonable time to fix them
• use building inspectors to document defects
• apply to Domestic Building Dispute Resolution Victoria for conciliation, which is usually required before going to VCAT
6. Common Scenarios and How to Respond
Scenario 1
The builder asks for twenty per cent deposit before starting
In most Victorian domestic building contracts the law caps the deposit at five per cent where the price is above twenty thousand dollars, and ten per cent for smaller jobs.
What you can do:
• politely point out the legal limits and ask the builder to amend the contract
• refuse to pay above the permitted deposit
• obtain legal advice. We can write to the builder and negotiate a compliant structure
Scenario 2
The bank says the frame stage is complete but you can see obvious problems
The lender focuses on whether the valuation supports the loan, not on detailed quality issues.
What you can do:
• organise an independent building inspector to check the stage
• raise any serious issues in writing with the builder before authorising the bank payment
• consider part payment with clear written terms for rectification, if appropriate, after legal advice
If the dispute escalates, you can use Domestic Building Dispute Resolution Victoria to try to resolve it without court.
Scenario 3
The builder keeps issuing variation notices and the price is blowing out
You should check:
• whether the variation is genuinely required under the contract
• whether you were properly warned about the price impact and given a chance to say no
• whether some of the claimed variations are actually work already included in the contract price
Unfair or non compliant variations can often be resisted or reduced. We regularly review these claims and push back where the builder is overreaching.
Scenario 4
Delays in building mean your interest costs are rising and your loan approval period is running out
You may have:
• rights under the building contract to claim liquidated damages or general damages for delay
• options to renegotiate dates with your lender
• the ability to seek orders at VCAT if the builder has substantially failed to progress the work
These situations require careful strategy because you are balancing contractual rights with the practical need to get the house finished and keep the bank on side.
7. How Shawn Mendis Lawyers Can Help
At Shawn Mendis Lawyers in Pakenham we regularly assist home owners with:
• reviewing construction loan approvals and building contracts before you sign
• checking that progress payment schedules comply with Victorian law
• advising whether each stage is truly complete before you authorise payment
• negotiating with builders and lenders when things start to go wrong
• preparing applications to Domestic Building Dispute Resolution Victoria and VCAT where needed
We combine construction law knowledge with practical experience dealing with banks and volume builders, so that you understand your risks in simple language and can make confident decisions.
Important note
This article is general information about Victorian law as at late 2025. It is not tailored legal advice. Your contract, lender and builder situation may be different. Always obtain advice before refusing to pay, cancelling a contract or making any major decision on your build.
