Knock Down Rebuild Loans Australia

A knock down rebuild loan is a construction loan used to fund the demolition of an existing home and the construction of a new one on the same block. The loan combines demolition costs with the build cost and is drawn down in staged progress payments as construction milestones are completed. Lenders assess the loan against the projected end value of the completed home, not just the current land value.

A standard construction loan typically applies when you are building on vacant land. A knock down rebuild loan applies when you already own a block with an existing structure that needs to be demolished first. The demolition costs are included in the total loan amount, and the lender may require demolition approval, a council DA and a fixed-price building contract before the loan can be settled. If you have an existing mortgage on the property, that loan is usually refinanced into the new KDR construction loan.

Most Australian lenders assess knock down rebuild loans against the projected end value of the completed home. Banks typically lend up to 80% of the end value without lenders mortgage insurance, and up to 90% with LMI for eligible borrowers. The actual LVR depends on the lender, location, borrower profile, build contract and whether the property is for owner-occupation or investment. Some lenders cap KDR loans lower for regional locations or complex sites.

Yes, equity built up in your existing land or property can count toward the deposit required for a knock down rebuild loan. If the land is unencumbered or has significant equity above any existing mortgage, that equity may reduce the cash contribution required. The lender will still assess the total loan amount against the projected end value, and any existing mortgage on the land must typically be rolled into the new construction loan.

Most lenders require a council development approval and demolition permit before the KDR loan can be fully approved or settled. Some lenders may offer a conditional pre-approval before DA is issued, but the full loan generally cannot proceed until approvals are in place. Getting council approval in advance reduces delays and gives the lender confidence the project is progressing.

If you have an existing home loan on the property, it is usually refinanced into the new knock down rebuild construction loan. The new loan covers the payout of the existing mortgage, the demolition costs and the build contract. This is an important step that borrowers sometimes overlook when budgeting for the project. A finance contact or broker can help you understand how an existing loan interacts with a new KDR application.

Yes, knock down rebuild loans can be used for investment properties as well as owner-occupied homes. For investment KDR projects, lenders typically apply standard construction loan criteria, including assessment of the end value, a fixed-price building contract and evidence the borrower can service the debt. LVR limits and lender appetite may differ for investment builds compared to owner-occupied projects.

Typical documents include a signed fixed-price building contract, council development approval and demolition permit, plans and specifications, borrower financials including tax returns and payslips or BAS statements, bank statements, evidence of deposit or equity, and the title details for the land. If there is an existing mortgage on the property, payout figures are also required. The exact document requirements depend on the lender and the complexity of the build.