What Happens to Your Construction Loan if Your QLD Builder Goes Bust?

Key Takeaways

• A construction loan usually stays in place when a builder goes bust, but drawdowns stop and interest on the drawn balance keeps running.
• A non-completion claim generally needs the building contract to have formally ended, and must be lodged with the QBCC within three months of that date.
• The scheme may pay the cost to complete minus the contract balance you still hold, capped at $200,000, or $300,000 with optional additional cover.
• Early payments, underpriced contracts and holding costs can widen the gap, which owners may close through a loan increase, savings, equity or a refinance.

The site has been quiet for a fortnight. Calls to the supervisor ring out, and then an email arrives from a liquidator. For anyone halfway through a build, the question ‘what happens if my builder goes bust’ stops being hypothetical overnight.

A construction loan does not usually disappear when a builder collapses, and money already spent is not automatically lost. Queensland has a statutory safety net in the Queensland Home Warranty Scheme, administered by the Queensland Building and Construction Commission (QBCC), and how well you come through usually depends on timing, paperwork and how the numbers line up once a new builder prices the finish.

The order of your next moves can affect both the claim and the loan, so any change to your construction home loan is usually mapped with the lender before anything new is signed.

What Happens to Your Construction Loan the Day Your Builder Stops?

Nothing in your loan contract changes automatically when a builder collapses. What changes is how money moves through it:

Undrawn Funds Held by the Lender

The approved loan amount generally stays in place. Funds already drawn remain owing, and the undrawn balance stays with the lender until a valid progress claim is lodged and verified, so drawdowns stop when no builder is issuing claims.

Most lenders release each stage only after a progress valuation confirms the work has been done, which limits how much money can sit with a builder for work that does not yet exist.

Repayments Charged on Drawn Funds

Repayments continue on whatever has been drawn. Many lenders allow interest-only repayments during construction, but a stalled build does not pause them, and owner-occupiers renting while they build may carry rent and repayments side by side for longer than planned.

Loan Approval Tied to the Original Contract

Further drawdowns typically depend on your lender approving a replacement contract and builder, because the original approval was based on a specific fixed-price contract, builder and ‘as if complete’ valuation. A builder collapse is not usually treated as a default by you, the borrower.

Construction Deadline Set in Your Loan Contract

Construction loans normally set a period for the build to finish, and the length of that period varies between lenders. When that period runs out, the loan may convert to principal and interest repayments, or the lender may charge for an extension.

An extension is usually easier to arrange before the original period ends, and a QBCC claim reference gives the lender something concrete to assess.

Contract Endings That Open a QBCC Home Warranty Claim

A non-completion claim generally opens only once the building contract has ended in one of the ways set out in the QBCC’s non-completion claim conditions. A builder going quiet is not enough on its own:

Valid Termination

You end the contract because of the builder’s default, such as abandoning the site or failing to proceed with the work. Termination has to follow the notice steps in the contract and Queensland law. A termination later found to be invalid can put the claim at risk and may expose you to a counterclaim from the builder or its liquidator.

Insolvency and Licence Cancellation

A builder’s insolvency opens this pathway only once the QBCC has also cancelled its licence. Builders in administration or liquidation may still hold a licence for a period, and terminating for default may be a separate pathway in the meantime.

Company Deregistration

Where the builder was a company that has been deregistered or otherwise no longer exists, the contract is treated as having ended.

Contractor Death

For a sole-trader builder, death ends the contract and can open a claim for unfinished work.

These conditions are a general guide. The QBCC assesses each claim against the legislation and the facts of your contract.

Builds Outside the Non-Completion Cover

Some builds sit outside non-completion cover altogether, which changes where the money to finish has to come from. The arrangements generally excluded are:

Cost-Plus Contracts

Non-completion claims are only accepted on fixed-price contracts, because the QBCC needs an agreed price to measure the loss against. A cost-plus contract, where you pay actual costs plus a margin, generally falls outside this cover.

Construction Management Contracts

Where you engaged a construction manager to coordinate trades on your behalf, a non-completion claim is excluded under the QBCC’s published criteria.

Owner-Builder Projects

According to the QBCC, owner-builders cannot access the Queensland Home Warranty Scheme. Taking over the remaining stages as an owner-builder after a collapse, which a permit can allow, would place that work outside the scheme.

Developer Projects

Developers cannot claim for non-completion.

3 or More Residences

Building three or more residences, whether houses or units, excludes the owner from a non-completion claim. A two-dwelling duplex is not caught by this particular exclusion.

Contractor-Owned Land

A licensed contractor building on land they own cannot make a non-completion claim.

This is a general guide only, and a contract that mixes arrangements may need the QBCC to confirm where it sits.

Steps Owners Typically Take in the First Few Weeks

The time limits that decide a claim start running once a contract ends. Owners typically work through these actions, roughly in order:

Holding Back Payments

Leaving the progress payment authority for an unfinished stage unsigned keeps that money in the loan, where the QBCC treats it as funds you still hold. Lenders usually release a stage once you sign the authority, and payments made ahead of schedule can reduce a later payout.

Securing the Site

An incomplete home may be uninsured for a period, because the builder’s contract works insurance may stop once the contract ends and the scheme’s damage cover applies only after a non-completion claim has been accepted. Fencing, locking up and insuring the site can help protect the security your lender relies on, and many loan contracts require the property to stay insured.

Collecting Contract Records

Both the claim and the lender’s reassessment typically draw on the signed contract and variations, every invoice and payment receipt, the QBCC Notice of Cover, building approvals, inspection certificates, correspondence with the builder and dated photos of the site.

Getting Legal Help

A solicitor familiar with Queensland building disputes can confirm the exact date the contract ended, or how to end it properly if it has not. That date starts the three-month claim clock.

Lodging the Claim

The claim must be lodged with the QBCC within three months after the contract ends. Where work has started, the contract itself must also have ended within two years of work starting on site. Missing either limit can rule out a claim entirely.

Notifying Your Lender

Early contact gives the lender time to hold pending progress claims and consider an extension to the construction period before it lapses.

These timeframes are a general guide based on QBCC-published requirements, and the dates that apply depend on how and when your contract ended.

How Is the QBCC Home Warranty Payout Calculated?

Once work has started, the QBCC measures what it would cost to finish the job, not what you have already paid, and several limits shape the final figure:

Completion Cost Minus Funds Still Held

The QBCC, through a service provider, obtains tender quotes from licensed contractors to finish the job. It then pays the difference between that cost and the contract balance you still hold, or should still hold.

Take a $520,000 fixed-price contract where the frame stage has been reached and $130,000 has been paid on schedule. The balance still held is $390,000. If the approved quote to finish is $455,000, the scheme may contribute $65,000, so the home can be completed for close to the original price.

Cover Cap of $200,000 or $300,000

According to the QBCC, standard cover pays up to $200,000, rising to $300,000 where optional additional cover was bought. On the same contract, a completion quote of $640,000 would leave a $250,000 difference, but standard cover would pay no more than $200,000. The remaining $50,000 would fall to the owner.

Optional additional cover can only be bought within 30 business days of entering the contract or before work starts, whichever comes first, so it cannot be added once a build is under way. These limits are set under Queensland law and may change, so the current figures are worth confirming with the QBCC.

Reductions for Early Payments

Money paid to the builder before a stage was due under the contract is treated as money you should still be holding, so the QBCC may deduct its estimate of the cost to finish that prepaid stage from the payout.

Reductions for Underpriced Contracts

Where the value of the work exceeds the contract price by more than 30%, the QBCC treats the contract as underpriced and may reduce what it approves, leaving a larger gap for the owner to fund.

Accommodation Allowance for Owner-Occupiers

Owner-occupiers whose home is not habitable may claim reasonable accommodation, removal and storage costs once a non-completion claim is approved. The limit is $5,000 under standard cover and $10,000 with optional additional cover, and it sits inside the overall cap. Over a long delay, that amount may cover only part of the rent.

Damage Cover for Incomplete Work

Once a non-completion claim has been accepted, the scheme may also cover damage to the incomplete work from fire, storm, vandalism or theft. According to the QBCC, vandalism and theft costs sit within the non-completion maximum, while fire and storm damage has its own maximum of $200,000 under standard cover.

Exclusions From the Payout

The scheme pays towards the cost of completing the work, so extra loan interest, rent above the accommodation limit and lender fees for variations or extensions sit outside it.

As a general guide, the figure approved in any claim depends on the QBCC’s assessment of your contract against these published limits.

How Do You Fund the Shortfall to Finish the Build?

A lender typically funds the finish by working out the gap, revaluing the build and then looking at how the difference could be covered:

Shortfall Calculation by Your Lender

Your undrawn loan funds, any approved scheme contribution and your own savings are usually added together, then compared with the new completion contract plus recertification, extra interest, rent and other holding costs.

Where the $390,000 contract balance on a $520,000 build is still sitting undrawn in the loan, a $455,000 completion quote is matched by those funds and a $65,000 contribution. Only the extra costs remain. At $640,000, the same owner faces a $50,000 gap before those costs are counted.

Fresh Valuation on the Completion Contract

Before funding a new builder, most lenders order a new valuation based on the completion contract and the plans. They may also ask for the new fixed-price contract, the new builder’s licence details and evidence of home warranty cover for the completion work. A valuation that comes in below the total cost can widen the gap.

Loan Increase With the Same Lender

Where the gap is modest, the existing lender may approve a loan increase. That involves a fresh serviceability assessment on current income and expenses, and a check of the new loan-to-value ratio (LVR). With many lenders, an LVR above 80% may trigger Lenders Mortgage Insurance (LMI), which adds to the cost.

A construction lending adviser in Brisbane can model how an increase may look across different lenders before anything is lodged.

Contribution From Equity or Savings

Savings, or equity in another property, can close a gap without increasing the construction loan itself. Drawing on equity in an existing home typically means a separate top-up or loan secured against that property, with its own approval and serviceability assessment.

Refinance to a Different Lender

Where the current lender will not extend or increase the loan, refinancing the partly built home to another lender may be possible, though fewer lenders accept an incomplete build as security, so choices can be narrower and pricing may differ. A refinancing adviser can compare lenders that may consider this scenario, along with the costs of switching mid-build.

Stalled Build Funding Restarted

A practical next step is to put the date your contract ended, your QBCC claim reference and the completion quote in front of your lender together. With all three in hand, a lender may be able to assess the shortfall and any extension in one pass.

If you are weighing up how to fund the finish after your builder’s collapse, Richard and the team at AusFirst Lending Group can talk you through the options that suit your circumstances.

Frequently Asked Questions (FAQs)

1. Can my builder’s liquidator keep my deposit or progress payments?

A liquidator does not usually return deposits or progress payments in full. Money already paid to the builder generally becomes part of the insolvent company’s affairs, and owners are often unsecured creditors for any amount owed back to them, so recovery may be slow and partial.

2. Can I pick the builder who finishes my home?

Your choice of finishing builder may be limited, because the QBCC generally works out the completion cost from tender quotes it arranges and approves a contractor for the work.

Engaging a builder outside that process may change how the claim is settled, so it is worth confirming with the QBCC before signing with a replacement builder.

3. How long does a QBCC non-completion claim usually take?

The QBCC does not publish a fixed timeframe. A claim typically moves through validation, an eligibility assessment, a scope of works, tendering and approval. Complex sites or busy periods can stretch each stage.

4. Will I lose the $30,000 First Home Owner Grant if my builder goes bust?

Not necessarily. The Queensland Government has continued the $30,000 grant beyond 30 June 2026 for eligible new home contracts signed on or after 20 November 2023, where the home and land are valued under $750,000.

Whether a collapse affects it may depend on whether the grant has already been paid, how a replacement contract is treated and whether the total value, including variations, still sits under that cap. The Queensland Revenue Office assesses these situations individually.

Where the grant is applied for through the lender, its payment is often tied to construction loan drawdowns, so a stalled build may also delay when it is paid.

5. Can I sell the land and partly built house instead of finishing it?

Selling is possible, though an incomplete home usually attracts fewer buyers and a lower price than its finished value. The lender would need to be repaid from the sale, and any shortfall between the sale price and the loan balance would remain owing.

The QBCC states that home warranty cover attaches to the property, which may matter to a buyer. How an open claim is handled in a particular sale is a question for a solicitor before listing.

6. Does a builder going bust affect my credit score?

The builder’s insolvency is not part of your own credit history. A missed loan repayment may affect your credit report, though, since lenders can report repayment history.

This article is general information only. It does not take into account your objectives, financial situation or needs, and you may wish to speak with a qualified legal or finance professional before acting on any of it.