Major Renovation Loans in Australia
8 min read- Project Finance Guide
- Updated May 2026
Quick Answer
How do you finance a major renovation in Australia?
With a construction loan using progressive drawdowns
Major renovations that involve structural changes, extensions, or second storey additions typically require a construction loan rather than a standard personal loan or home equity redraw. The lender assesses the project based on an as-if-complete valuation, releases funds in stages as work progresses, and charges interest only on the amount drawn down during the build. Most major banks and non-bank lenders offer construction loans for renovation projects where the total build cost exceeds $100,000 to $150,000 and a licensed builder holds a fixed price contract.
- Typical renovation build cost threshold for construction loan $100,000 to $150,000+
- Maximum LVR (most banks) 80% of as-if-complete value
- Interest charged during build Interest-only on drawn amount
- Current construction loan rate range (indicative, May 2026) 6.30% to 8.50% p.a.
Need help now? Call 1300 421 044
Need help now? Call 1300 421 044
How lenders classify your renovation project
Cosmetic and minor renovations
If your project involves painting, new flooring, kitchen or bathroom upgrades without moving plumbing or walls, or landscaping, it's classified as cosmetic. These projects don't usually require council approval or a licensed builder contract, and they're typically funded through a personal loan, home equity redraw, or line of credit. Most lenders won't offer a construction loan for cosmetic work because there's no need for staged drawdowns or progress inspections.
COSMETIC SCOPE
Major and structural renovations
When the work involves structural changes, such as removing load-bearing walls, extending the floor plan, adding a storey, or stripping the interior back to the frame, lenders treat it as a construction project. You'll need DA or CDC approval from council, a licensed builder with a fixed price contract, and an as-if-complete valuation. The loan is structured with progressive drawdowns and interest-only repayments during the build, the same as a new home construction loan.
STRUCTURAL SCOPERenovation budget bands and the right finance product for each
As renovation budgets grow, the appropriate finance product changes. Personal loans and redraw work for cosmetic upgrades, while structural work above $100,000 needs a construction loan with staged drawdowns.
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Under $50,000 Personal loan or redraw (cosmetic work)
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$50,000 to $100,000 Home equity loan or line of credit
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$100,000 to $500,000 Construction loan (standard major renovation)
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$500,000+ Construction loan (large-scale structural or extension)
The threshold isn't just about dollars. The trigger for a construction loan is structural work, council approval, and a licensed builder contract, not the budget alone. Some sub-$100,000 projects with structural changes still require a construction loan.
Planning a major renovation and not sure how to finance it?
What lenders need to approve your major renovation loan
A construction loan for a major renovation requires more documentation than a standard home loan. The items below are the minimum a lender will expect to see before they assess your application:
Equity of at least 20% based on the post-renovation as-if-complete valuation (most major banks require this as a minimum)- Council-approved plans: either a Complying Development Certificate (CDC) or a full Development Application (DA) approval for the proposed structural work
- Structural engineer's drawings and specifications where load-bearing changes, second storey additions, or foundation work is involved
- Fixed price building contract with a licensed and insured builder (HIA or MBA standard contract format preferred by most lenders)
- Builder on the lender's approved panel, or willingness to use a non-bank lender that accepts a broader range of licensed builders
- Evidence of income and serviceability, assessed at the current rate plus the APRA 3% buffer (cash rate of 4.35% in May 2026 means assessment rates around 9.30% to 11.50%)
- A contingency allowance of at least 10% of total build cost (some lenders and quantity surveyors recommend 15% for older properties where hidden issues are more likely)
Renovation-specific issues that catch borrowers out
Major renovations come with risk profiles that don't apply to a standard new build. Each of these items consistently delays approvals or pushes up costs once the work begins:
Older homes carry hidden risk. Properties built before 1990 often contain asbestos in eaves, wall cladding, or wet areas. Removal costs can add $10,000 to $30,000 depending on the extent, and this must be included in the builder's contract and your budget before the lender will approve the loan.- The builder's licence matters more than you think. Lenders don't just check that your builder is licensed. They verify the licence class covers the type of work proposed and confirm the builder holds current home warranty insurance. If your builder's licence doesn't cover structural work or multi-storey additions, the lender will decline the application.
- Your contract type affects your options. Most banks will only accept a fixed price contract for a major renovation construction loan. Cost-plus contracts are generally limited to non-bank and private lenders, and they come with higher rates and lower LVR caps. For more on this, see our guide to fixed price contract requirements.
- Heritage overlays can slow everything down. If your property sits in a heritage overlay zone, council approval takes longer and the range of permitted changes is narrower. Some lenders are cautious about heritage-listed properties because resale value can be harder to predict if future buyers face the same restrictions.
- Don't forget the temporary accommodation budget. If you need to move out during the renovation, your lender will include the cost of rent or alternative housing in their serviceability assessment. This can reduce your borrowing capacity by $20,000 to $40,000 or more depending on how long you'll be out and where you live.
How lenders assess and fund a major renovation project
Financing a major renovation involves more moving parts than buying an existing property. Your lender needs to understand the scope of work, the projected end value, the builder's credentials, and how the loan will be drawn down across the build. Here's what happens at each stage of the assessment.
01
What counts as a "major renovation" for finance purposes
Lenders define a major renovation as any project that involves structural changes to the dwelling. This includes removing or relocating load-bearing walls, adding rooms or floor area, building a second storey, replacing the roof structure, or stripping the interior back to the frame. The key test is whether the work requires council approval and a licensed builder. If it does, the lender will treat it as a construction project and require a construction loan with staged drawdowns.
02
Why you can't use a personal loan or redraw for structural work
Personal loans and home equity redraws release the full amount upfront with no oversight of how the funds are spent. For structural renovations over $100,000, lenders need to control the flow of money to protect both you and themselves. A construction loan releases funds in stages after each phase of work is inspected, which means the lender can verify that the build is progressing correctly before releasing more money. This staged approach also protects you from paying for work that hasn't been completed.
03
Council approval requirements for structural renovations
Almost all structural renovations require either a Complying Development Certificate (CDC) or a full Development Application (DA). A CDC is faster, typically taking 10 to 20 business days, and applies to projects that meet specific pre-set criteria under state planning rules. A full DA goes through the council assessment process and can take 6 to 12 weeks or longer, especially if neighbour notification or heritage review is involved. Your lender will not release any construction funds until council approval is confirmed. For state-specific building regulations, the Australian Building Codes Board is a useful reference.
04
How the as-if-complete valuation works for renovations
The lender orders a valuation based on what the property will be worth after the renovation is finished. A registered valuer reviews the approved plans, the builder's contract, and recent comparable sales in your area, then provides an estimated end value. The loan amount is calculated as a percentage of this as-if-complete value, typically up to 80% LVR. If the valuation comes in lower than expected, you may need to contribute more equity or reduce the scope of work. For more detail on how this process works, see our guide to construction loan valuations.
05
How progress payments work during a renovation
Unlike a new build that follows a standard 5 or 6 stage drawdown schedule (slab, frame, lock-up, fit-out, completion), renovation progress payments are structured around the specific scope of work. Your builder submits an invoice at each agreed milestone, the lender sends an inspector to verify the work, and the funds are released directly to the builder. Because renovation stages can be less predictable than a new build, it's common for lenders to use a customised drawdown schedule based on your builder's contract. For a deeper explanation, see our guide to construction loan progress payments.
06
Staying in the property versus moving out during the build
Whether you can stay depends on the scope of work and your council conditions. Minor structural renovations to one part of the house may allow you to remain in the unaffected sections, but large-scale projects such as second storey additions, full strip-outs, or extensive foundation work will typically require you to vacate. If you move out, the lender factors rent or temporary housing into your serviceability assessment, which can reduce your borrowing capacity. Budget for temporary accommodation of 3 to 9 months depending on the project size and builder's estimated timeframe.
Common problems when financing a major renovation
Major renovations are more unpredictable than new builds, and lenders know it. Here are four problems that regularly trip up borrowers during the approval or build process, and what you can do about each one.
The as-if-complete valuation came in below your renovation budget
This happens when the valuer determines that the post-renovation property value doesn't support the total cost of the proposed work. It's especially common with high-spec renovations in areas where comparable sales are limited, or when the renovation scope exceeds what the local market will pay for. The gap between your build cost and the valuation means you either contribute more equity from your own funds or reduce the scope.
Get an indicative valuation from a quantity surveyor before committing to a builder contract, so you know the likely end value before you apply.
The builder isn't on the lender's approved panel
Major banks maintain panels of approved builders and will only release construction funds to builders on that list. If your preferred builder isn't on the panel, the bank won't approve the loan regardless of how competitive their quote is. This is one of the most frustrating roadblocks for borrowers, especially when they've already signed a contract with a builder they trust.
Ask your broker which lenders accept your builder, or consider a non-bank lender that doesn't maintain a restrictive builder panel. Our guide to non-bank construction lenders explains the options.
The renovation scope keeps expanding after approval
Scope creep is extremely common with renovation projects, particularly in older properties where hidden issues like termite damage, asbestos, or substandard wiring only become apparent once walls are opened up. If the cost exceeds your approved loan amount, the lender won't simply increase the facility mid-build. You'll need to fund the difference yourself, apply for a variation (which requires a new valuation), or reduce the remaining scope to stay within budget.
Build a 10% to 15% contingency into your budget from the start, and make sure your builder's contract includes a clear process for pricing variations before work proceeds.
The project crosses the line into a knockdown rebuild
If your renovation involves demolishing or replacing more than 50% to 70% of the existing structure, many lenders will reclassify the project as a knockdown rebuild. This changes the finance structure, the deposit requirements, and the valuation methodology. Some borrowers don't realise they've crossed this threshold until the lender reviews the plans, which can cause significant delays and require a different loan product entirely. For full details on how this works, see our guide to knockdown rebuild loans.
Have your broker or architect confirm whether the scope falls within the lender's renovation threshold before you lodge your application.
How to get your major renovation loan approved
Step
01
Define the scope and confirm whether it's a major renovation
Before you contact a lender or broker, you need to be clear on what work is involved. If the project includes structural changes, extensions, a second storey, or a full internal strip-out, it's a major renovation and you'll need a construction loan. If it's cosmetic only (paint, flooring, fixtures), you may be able to use a simpler finance option. Getting this right at the start saves weeks of wasted time with the wrong lender or loan product.
Step
02
Engage a licensed builder and get a fixed price contract
Lenders need a signed fixed price building contract before they'll assess your application. Choose a builder who is licensed for the type of structural work you're proposing, holds current home warranty insurance, and ideally has experience with renovation projects rather than just new builds. Ask for a detailed contract that breaks costs down by stage, because your lender will use this breakdown to structure the progress payment schedule. If you're unsure which builders your lender will accept, a construction loan broker can check panel requirements across multiple lenders before you sign anything.
Step
03
Get council approval before you apply for finance
Your lender won't assess the application without evidence of council approval, whether that's a CDC or a full DA. Submit your plans to council as early as possible, because DA approvals can take 6 to 12 weeks. If your project needs a DA and you also need structural engineer drawings, get both processes running at the same time to avoid sequential delays. The lender will want to see the approved plans, the conditions of consent, and confirmation that the builder's contract matches the approved scope.
Step
04
Organise your financials and check your borrowing capacity
Gather your income evidence (payslips, tax returns, or BAS statements if self-employed), a current statement of your existing mortgage, and a detailed breakdown of your monthly expenses. Your lender will assess your capacity to service the loan at the current rate plus a 3% buffer under APRA guidelines. With the RBA cash rate at 4.35% in May 2026, that means assessment rates are sitting around 9.30% to 11.50% depending on the lender and product. If you're concerned about capacity, our guide to construction loan borrowing capacity covers the detail.
Step
05
Submit the application and prepare for the valuation
Once your broker or lender has all the documentation, the formal application goes in. The lender will order an as-if-complete valuation, which typically takes 1 to 3 weeks depending on the valuer's availability and the complexity of the project. Be ready for the valuer to request additional information, particularly if the renovation is unusual or the property is in an area with limited comparable sales. The valuation outcome determines how much the lender will approve, so don't commit to builder deposits or start dates until this step is complete.
Step
06
Move from approval to first drawdown
After unconditional approval, your lender will issue a formal loan contract. Once you've signed it and any conditions are satisfied (such as confirming insurance and providing the builder's commencement date), the first drawdown can be requested. Your builder submits the initial progress invoice, the lender arranges an inspection, and the funds are released directly to the builder. From here, each stage of the renovation follows the same process: builder invoices, lender inspects, funds are released. Keep a close eye on progress against the contract timeline and flag any variations with your lender immediately.
Get matched with a renovation finance specialist
Major renovation projects involve more complexity than a standard home purchase. The lender needs to approve your builder, assess the as-if-complete value, structure the drawdown schedule around your renovation stages, and factor in whether you'll need temporary accommodation. Getting the right loan structure from the right lender can save you thousands in unnecessary interest and avoid delays during the build.
Property Finance Help connects you with finance professionals who specialise in construction and renovation lending. The service is free to use and there's no obligation. The right specialist can compare lender policies on builder panels, drawdown structures, and LVR thresholds to find the option that fits your specific renovation project.
Property Finance Help is a lead generation service, not a lender, broker, or financial adviser. All information on this website is general in nature and does not take into account your personal objectives, financial situation, or needs. Consider seeking independent professional advice before making any financial decision.
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