Knockdown Rebuild Loans in Australia

Most major banks expect you to fund demolition separately before construction lending begins, though some non-bank lenders will include demolition in the loan. Banks typically treat demolition as a pre-construction cost that the borrower covers from savings or equity. If you don't have the cash to cover demolition upfront, talk to a specialist broker about non-bank lender options that roll demolition into the overall loan structure.

Lenders use an as-if-complete valuation, which estimates what the finished home will be worth once construction is done. The valuer reviews your approved plans, specifications, and the building contract, then compares the proposed home against recent comparable sales in the area. Your current home's value before demolition is largely irrelevant to the lending assessment. The as-if-complete figure determines your LVR, borrowing limit, and whether LMI applies. For more detail on how this process works, see our guide to construction loan valuations.

Yes, most lenders require either a development application (DA) approval or a complying development certificate (CDC) before they will issue formal loan approval. The council approval confirms that your proposed build meets local planning controls including height, setbacks, floor space ratio, and heritage overlays. In some states, a CDC through a private certifier is faster than a full DA through council, often taking 10 to 20 business days compared to 8 to 16 weeks for a DA.

Your existing mortgage is typically refinanced into the new construction loan before demolition begins. The lender pays out the old loan and sets up the construction facility in one transaction. If you owe more on your current mortgage than the land value alone, you may need additional equity or savings to bridge the gap, because once the house is demolished, the security is reduced to land only until construction progresses.

A typical knockdown rebuild takes 12 to 18 months from demolition to move-in, though it can stretch to 24 months for larger or more complex projects. Demolition itself usually takes 1 to 3 weeks depending on the size of the home and whether asbestos is present. Construction timelines vary by builder and build complexity, but most standard residential builds run 8 to 12 months after slab is poured. Council approval timeframes sit on top of this and can add 3 to 4 months before any work begins.

Yes, you can continue living in the existing home during the loan approval process. You only need to move out before demolition begins. Most borrowers arrange alternative accommodation such as renting, staying with family, or short-term leasing once the loan is formally approved and demolition is scheduled. Your lender will factor in alternative accommodation costs when assessing your borrowing capacity during the construction period.

In many established suburbs, yes. You avoid paying stamp duty on a full property purchase because you already own the land. In NSW, for example, stamp duty on a $1.5 million home purchase could exceed $65,000, while a knockdown rebuild on land you already own attracts no additional stamp duty on the land component. The total cost depends on your demolition expenses, build cost, and what comparable new homes are selling for in the same suburb.

Most lenders require a deposit equivalent to 20% of the as-if-complete value to avoid lenders mortgage insurance (LMI). If you already own the land with no mortgage, the land equity counts toward your deposit. For example, if your land is worth $700,000 and the total as-if-complete value is $1.2 million, you already have significant equity before any cash deposit. Some lenders accept deposits as low as 10% to 15% with LMI, and your existing land equity reduces what you need to contribute in cash. For specific deposit thresholds, see our guide to construction loan deposit requirements.