Last Updated: 29th May, 2024


In most cases, finance is not available. See below for specific lending criteria.

A split contract construction is usually a multi-dwelling development with houses, townhouses, units or villas.

The developer requires the land to be settled by the buyer before construction commences and so it’s processed like a construction loan.

How do I get approved?

Don’t meet all of the below criteria? Unfortunately we cannot assist you.

The multi unit residential development must:

  • Be accessible by road.
  • Have services available such as power and water.
  • Be a freestanding house which means no common walls or slabs with other properties.
  • Have a development application (DA) that allows construction to be completed independent of the other dwellings in the development.
  • Have no restrictions on resale.

If you meet the above criteria then you can borrow up to 90% of the property value with select lenders.

Please call us on 1300 889 743 or complete our online enquiry form and we can help you qualify for a split contract construction loan.

What if my property doesn’t meet this criteria?

We’re solutions focused at Home Loan Experts so we’ve worked out a few options that may work for you:

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Why do the banks see split contracts as risky?

The main concern that banks have with split contract constructions is saleability.

Vacant land itself is not typically an acceptable form of security for various reasons so banks are relying on the development to go ahead.

It’s difficult to get a proper valuation because common property (like roadways and access) will not have been completed at the time of settlement so it’s difficult to resell.

The land price may be inflated

By subtracting the construction costs from the proposed sale price of the development, you’ll be left with the land contract sum.

Sometimes the land value may be inflated above market value which means you’ll be knocked back for the amount you need to borrow.

This is a standard problem with valuing land in general and lenders are getting strict with getting a land valuation that’s independent from adjoining construction work.

This is known as counterparty risk.

The subsequent delay in getting funding for the project puts pre-sale contracts that have been signed at risk.

Where the developer or builder ceases operations, the bank will need to engage the remaining owners and financiers to complete the development.

Banks want to avoid this at all costs!

The contract may restrict resales

It’s common for split contracts to restrict resales, as well as:

  • The sale and mortgage of the land, which typically requires the developer’s consent.
  • How the building is constructed.
  • The builder you’re permitted to use.

Banks don’t like stratum title

In certain locations, split contracts are typically used for strata titled developments where an owners corporation exists.

Banks don’t like approving loans for strata title units because of the complex legal nature of ownership.

Some banks may factor this in when approving your construction loan, restricting your Loan to Value Ratio (LVR).

How does a split contract construction loan work?

Like a typical construction loan, a valuer will estimate the on-completion value based on the split contract.

If the valuer is satisfied, you’ll be pre-approved for your loan but the bank won’t release your funds until a full valuation of the completed property is undertaken.

This is what makes a split contract construction loan different to a typical construction loan where the builder is paid in progress payments before a final valuation.

It’s more similar to an off the plan purchase where the developer covers the costs of the build until it’s complete and then they receive the funds from your bank.

Split contracts are becoming increasingly popular

Split contracts themselves are common in purchases from developers in new estates or where developers are subdividing larger residential blocks.

This is the reason your property is dependent on the completion of the entire project.

If you’re planning to build a townhouse or multiple units on one title, the good news is that Australians are increasingly getting used to “smaller living”.

For example, Sydney will soon be a 50:50 city in which half the population will be living in standard dwelling houses and the other half will be living in smaller living spaces like units and townhouses.

This trend is continuing to spur on the development of multi unit dwellings.

Do you need a split contract construction loan?

We’re experts in construction and off the plan loans.

Please call us on 1300 889 743 or complete our free assessment form and we can help you qualify for a loan.