What happens if my build goes over budget?

Variations agreed with the builder, latent site conditions such as rock or contamination, authority requirements discovered late, provisional sum items in the contract costing more than allowed, prime cost items upgraded during selections, and delays that add holding interest. Each one increases the cost to complete, and the QS picks it up at the next progress report. If cost to complete is now $200,000 more than the money left in the facility, the lender will not release the next draw until $200,000 is put in or the facility is increased.

Contingency held within the approved budget is drawn first, with the lender's approval of the variation. When contingency is exhausted, the borrower funds. Lenders require evidence the funds are available and often want them deposited before the draw. Only after that will most lenders look at an increase, and the increase requires a revised valuation showing the end value still supports the higher debt, a QS report on the revised cost, and sometimes additional presales. It takes weeks, during which the builder is waiting.

If the ratios no longer work, the options are unattractive: second-tier or private funding behind the first lender at high rates, reducing scope through value engineering with the builder's agreement, bringing in an equity partner, or in the worst case selling the part-built project. Lenders would rather see the project finished than enforce, but they will not fund a project whose cost has outrun its value.

Hold a genuine contingency of five to ten per cent inside the facility and keep further reserves outside it. Insist on a fixed price contract with minimal provisional sums and detailed selections locked in before signing. Get the geotechnical and survey work done before the contract so site conditions are priced. Approve no variation with the builder until the lender has approved it. And build the interest capitalisation and a time buffer into the feasibility, because delay is the overrun nobody budgets for.