Knock Down Rebuild: Finance and Approvals in NSW

A knock down rebuild is usually two loans running together: the one you already have on the house, and a construction loan on top of it that pays the builder in stages. On the Upper North Shore it’s often the cheaper way into a new home in the same street you already like, because the land is the expensive part and you already own it outright or close to it. The median residential land value in Ku-ring-gai was $2,210,000 at 1 July 2025, according to the NSW Valuer General. You keep that. You only pay to replace the house.

The finance is where people come unstuck. Not the rate.

How the loans fit together

Your existing home loan stays where it is, secured over the land. The construction loan is added on top and drawn down in stages as the builder hits each milestone, and you’re charged interest only on what’s been drawn. CommBank says while the loan is progressively drawn, it only charges interest on the amount drawn down, and Bankwest describes interest-only repayments until construction is complete. At the end, the whole balance converts to an ordinary principal and interest loan.

The lender values the property as if the new house were already finished, and lends against that figure. That’s what makes the arithmetic work, and it’s why the lender wants a complete picture before the first payment: a signed fixed price contract, council-approved plans and the builder’s insurances. CommBank’s construction guide asks for a signed fixed price building contract by a licensed builder for contracts up to $1 million.

There’s no transfer duty on the build itself, which surprises people, because duty applies when you buy a property or someone transfers ownership to you and rebuilding on land you already own isn’t a transfer.

What the lender needs before the first payment

The paperwork is longer than for a purchase, and it all has to exist before the builder is paid. NAB asks for a signed industry standard fixed price contract plus builders all risk, home warranty and public liability insurance before the first progress payment, and Westpac lists council-approved plans and specifications, the signed building contract and builders risk insurance. Timing rules apply as well. CommBank says construction must start within twelve months of the disclosure date and finish within 24 months of the first progress payment.

Overruns are the part people don’t expect. The lender pays each stage up to the amount in the progress payment schedule, and Bankwest says plainly that it pays only up to the scheduled amount for each stage. Variations and price rises come out of your own pocket, so keep a cash buffer outside the loan for them.

Progress payments, and what NSW law says about them

Builders are paid against a schedule in the contract: deposit, slab, frame, lock-up, fit-out and completion is the common pattern. Bankwest publishes typical shares of roughly 5% deposit, 10 to 15% for the slab, 20% each for frame and lock-up, 30% for fit-out and 10% at completion, though every contract sets its own.

NSW Fair Trading sets the guardrails. The builder’s deposit must not exceed 10% of the contract price, progress payments should be for work actually done rather than time on the job, and on a contract over $20,000 you get five clear business days to cool off. On the same threshold the builder must hold home building compensation cover, which icare provides as a last resort if the builder becomes insolvent, dies or disappears. Check the certificate before you pay the builder anything at all.

Approvals: CDC or DA, and what Ku-ring-gai adds

A new house can be approved two ways. A complying development certificate is the fast track, and the NSW Government says it can be issued in as little as 20 days, against an average of 70 days for a development application. Not every block qualifies, though owners who can use that path can save up to $15,000 by the same source’s estimate.

Ku-ring-gai is where the shortcuts run out. The council says complying development is restricted in heritage conservation areas and not permitted on most heritage items, so the first thing to establish is whether your block sits in one. Trees matter too: a tree is protected if it’s 5 metres or taller, or has a trunk 150 millimetres or more across at ground level. Get a planning certificate for the block before you pay a designer, because the approval path sets the timetable and the timetable sets the interest.

Demolition needs its own approval, either as part of the complying development certificate or through a separate application, and the NSW Planning Portal says the contractor will usually notify neighbours and the council, with at least seven days’ notice to neighbours in metropolitan areas. Councils can ask for a bond too. The whole process can take up to 12 months, and you’ll be living somewhere else for most of it.

A hypothetical, run through the calculator

Here’s a hypothetical with invented numbers, run through our construction loan calculator. An owner in Pymble owes $1,200,000 on the existing house and signs a $900,000 fixed price contract for an 11-month build, paid on Bankwest’s typical schedule, at a hypothetical 6.24%.

The construction interest alone, on the stages as they’re drawn, is about $24,800. But the existing $1,200,000 is charged in full from day one, so the interest across the build comes to about $93,400. Once it converts, the repayment on the full balance is about $12,900 a month over 30 years.

That second number is the one to plan around, because it’s the repayment you’ll carry for the next three decades rather than eleven months. And it leaves out rent while you live somewhere else, which on the North Shore is usually larger than the construction interest.

The order we’d do it in

Planning certificate, approval path, then pre-approval for the build, then the contract. In that order. Builders sometimes push to sign early to hold a start date, and a deposit paid before the finance is approved is money you can’t easily get back if the valuation comes in short.

The existing loan deserves a look before any of this starts, because it’s half the finance. If it’s on a fixed rate, restructuring it can trigger a break cost, and if it sits with a lender that doesn’t handle construction lending well, moving both loans to one that does is usually cleaner than running a build across two banks.

Our view, which plenty of builders won’t like: don’t demolish on a conditional approval. Get the construction loan formally approved, with the lender’s valuation of the finished house in hand, before the excavator arrives. A builder’s slot can be rebooked. A cleared block with no finance can’t be put back.

Ansa runs our construction files and sets the existing loan and the build facility up together, because a quick approval on one side can leave you with a lender who won’t fund the other. What we can’t do is promise unconditional finance inside a fortnight because a builder wants a deposit, or protect you from a valuation that comes in under the contract price. When that happens the gap is cash, and we’d rather find it on paper first. That conversation takes ten minutes. If you’re upgrading rather than rebuilding, our upgrading page covers buying before you sell.