What is a construction loan?

It is a loan released in stages to pay a builder as a home is built. ANZ and Westpac both describe progress payments at key stages, and Westpac lists slab, frame, lockup, fit-out and completion. Interest is charged on what has been drawn rather than on the whole approved amount. Westpac's page asks for a signed building contract and council-approved plans before the loan starts.

Do you pay interest on the full loan during construction?

Not on the pages checked. ANZ says interest is calculated on the unpaid daily balance and repayments during construction are interest only. Westpac says you pay interest only on funds drawn down, not the whole amount upfront. The total interest depends on how much is drawn and for how long.

How much equity do you need to build townhouses to sell?

It depends on the lender. One published development loan allows up to 70% LVR but not more than 80% of total development cost, so where the cost cap is the binding limit and costs are $1,600,000, the borrower would fund $320,000 (20%). Land purchase terms can differ, for example La Trobe's 75% LVR on vacant land in metro areas.

Can an owner-occupier construction loan fund three townhouses?

The pages checked describe construction loans for building a home, and one lender lists its construction loan for a single or duplex dwelling and its multi-dwelling construction under development loans. Whether a lender will fund a particular project depends on its policy, so ask the lender or a broker which product applies.

Does GST affect how a townhouse project is funded?

It can. The ATO says purchasers of new residential premises withhold an amount at settlement and pay it to the ATO, either 1/11th of the contract price or 7% under the margin scheme. This reduces the cash the seller receives on the day. A tax adviser can confirm which rate applies to a sale.

How do construction loans and development finance work for townhouses?

Published lender pages treat building a home and building several townhouses as different products. ANZ and Westpac describe construction loans that release money in stages as a build reaches set points, while La Trobe Financial lists multi-dwelling construction under a separate development loan, with a 3-year maximum term, a lower maximum LVR and a higher starting rate than its own construction loan. This guide draws on lender pages checked on 7 October 2026. Terms change and vary by borrower, and nothing here is a recommendation or a comparison.

On the construction loans published by ANZ and Westpac, money is drawn in stages and interest is charged only on the amount drawn so far. A loan for building several townhouses to sell is a different product, so the first question for any lender is which product it would use for the project.

Checked October 2026. Rules, rates and prices change, so confirm anything that matters with the source linked below.

Two kinds of loan

The construction loan pages checked describe a home being built, with the builder paid in stages against a contract. The development loan page describes multi-dwelling or commercial construction, with limits tied to total development cost and a maximum term of 3 years. Which product applies to a project depends on the lender's policy and the number of dwellings.

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What four published lender pages say

These are examples of what lenders publish, not a ranking. All were checked on 7 October 2026.

Page	Loan type	Published terms
ANZ, construction loan	Home build	Progress payments to the builder at key stages. First drawdown within 6 months of the letter of offer and construction finished within 24 months of the first drawdown. Interest on the unpaid daily balance, interest-only repayments during construction. Needs a fixed-price building contract with a progress payment schedule
Westpac, construction loan	Home build	Draws in steps (slab, frame, lockup, fit-out, completion). Interest only on funds drawn. Needs a signed contract with stages and payment schedule, plus council-approved plans (or plans submitted for approval). Builder must carry public liability and risk insurance. Final payment follows a valuer's final inspection. Third-party fees such as progress valuations and quantity surveyor reports may apply
La Trobe Financial, construction loan	Single or duplex dwelling	Up to 80% LVR. Application fee 1.25% of the loan. Variable rate from 8.49% p.a. Vacant land loans up to 75% LVR in metro areas, with a 2-year maximum term
La Trobe Financial, development loan	Multi-dwelling or commercial construction	$100,000 minimum. Up to $5,000,000 at 70% LVR or up to $50,000,000 at 65% LVR, not to exceed 80% of total development cost. Maximum 3-year term, interest only. Application fee from 1.50% of the loan, excluding valuation and legal fees. Variable rate from 9.99% p.a. No redraw. Full or Lite Doc verification

The 'from' rates on the lender's site are published starting rates, and the lender says the rate depends on the loan amount and the borrower's risk grade.

How progress draws and interest work

ANZ's page says progress payments pay the builder at key stages of the build. Westpac's page says each draw involves inspection confirmation and that the final progress payment depends on a satisfactory final inspection by its valuer. Interest accrues on the amount drawn, so the cost climbs as the build advances.

Here is the arithmetic with hypothetical amounts, using 9.99% only as a sample rate (the 'from' rate on the development loan page above). If $300,000 has been drawn at slab stage, a month's interest is $300,000 x 9.99% / 12 = $2,497.50. If the full $900,000 limit were drawn, it would be $900,000 x 9.99% / 12 = $7,492.50 a month. Build time therefore feeds straight into financing cost, which is why how long it takes to build a townhouse matters to the budget.

Loan-to-value and total development cost

Loan-to-value ratio (LVR) is the loan as a share of a property's value. The La Trobe development page adds a second limit tied to cost. It states 70% LVR and a cap of 80% of total development cost.

Take a hypothetical project valued at $2,000,000 on completion, with total development cost of $1,600,000. If both published limits applied:

70% of value is $2,000,000 x 0.70 = $1,400,000.
80% of cost is $1,600,000 x 0.80 = $1,280,000.
The lower figure, $1,280,000, caps the loan, so the borrower funds $1,600,000 - $1,280,000 = $320,000 from equity or other sources.

Other lenders set different limits. The same lender's vacant land loans show how the land purchase can carry a lower LVR than the build: 75% in metro areas, with a 2-year term. Stamp duty on a townhouse: land versus building covers the duty on that purchase.

Fees and costs on top of interest

Application fees: 1.25% on the construction loan page and from 1.50% on the development loan page. On a $1,000,000 development loan, 1.50% is $15,000, before valuation and legal fees.
Valuations and quantity surveyors: Westpac's page lists progress valuations and quantity surveyor reports as third-party costs.
Builder's deposit: in Victoria, deposits are capped at 5% where the contract price is $20,000 or more, so the most a builder can ask for on a $1,000,000 contract is $50,000. How to choose a townhouse builder covers contract terms.
Home Warranty: for Victorian contracts signed from 1 July 2026, the registered builder pays the premium.
GST at settlement: when new residential premises are sold, the ATO says the purchaser withholds an amount and pays it to the ATO, 1/11th of the contract price for fully taxable supplies or 7% where the margin scheme applies. That affects the cash that reaches the seller at settlement.

What lenders ask for

The pages above name the building contract with stages and payment schedule, council-approved plans, builder insurance, valuations and documentation to verify the borrower (Full or Lite Doc). Requirements such as pre-sales, the borrower's building experience or a feasibility study are not stated on the pages checked, so a lender or broker needs to confirm them for a particular project. Costs that drive the numbers are in what it costs to build two or three townhouses in Melbourne.

Common questions

What is a construction loan?: It is a loan released in stages to pay a builder as a home is built. ANZ and Westpac both describe progress payments at key stages, and Westpac lists slab, frame, lockup, fit-out and completion. Interest is charged on what has been drawn rather than on the whole approved amount. Westpac's page asks for a signed building contract and council-approved plans before the loan starts.
Do you pay interest on the full loan during construction?: Not on the pages checked. ANZ says interest is calculated on the unpaid daily balance and repayments during construction are interest only. Westpac says you pay interest only on funds drawn down, not the whole amount upfront. The total interest depends on how much is drawn and for how long.
How much equity do you need to build townhouses to sell?: It depends on the lender. One published development loan allows up to 70% LVR but not more than 80% of total development cost, so where the cost cap is the binding limit and costs are $1,600,000, the borrower would fund $320,000 (20%). Land purchase terms can differ, for example La Trobe's 75% LVR on vacant land in metro areas.
Can an owner-occupier construction loan fund three townhouses?: The pages checked describe construction loans for building a home, and one lender lists its construction loan for a single or duplex dwelling and its multi-dwelling construction under development loans. Whether a lender will fund a particular project depends on its policy, so ask the lender or a broker which product applies.
Does GST affect how a townhouse project is funded?: It can. The ATO says purchasers of new residential premises withhold an amount at settlement and pay it to the ATO, either 1/11th of the contract price or 7% under the margin scheme. This reduces the cash the seller receives on the day. A tax adviser can confirm which rate applies to a sale.

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Sources

This is general information, not financial, tax or legal advice. Get advice that suits your situation before you buy.