Quick answer
A knock down rebuild loan finances demolishing an existing home and building a new one on the same land. It is usually a staged construction facility secured by your property, with funds released as demolition and each building stage are completed. Ownright Custom Finance arranges knock down rebuild loans Australia-wide, including for self-employed owners and files banks have declined.
Key points
- The loan usually combines the existing equity with staged building payments
- Demolition, approvals and temporary accommodation need to be budgeted for
- Lenders value the land plus the finished home, not just the old house
- Self-employed owners and awkward credit histories can still be considered
- Suits
- Owners who love the location but not the house
- Security
- The land and the new home as it is built
- Payment style
- Staged progress payments, often after a fixed-price contract
- Australia-wide
- Yes
What is a knock down rebuild loan?
Some homes are in the right street and wrong everywhere else. The layout is awkward, the foundations are tired or renovating would cost almost as much as starting again. A knock down rebuild lets you keep the address and the land, demolish what is there and build a new home that suits your family now.
The finance behind it is a construction loan with a twist: the land is already yours, so the lender is looking at your existing equity, what you owe on the old house and what the new home should be worth when it is finished. Money is released in stages so the builder is paid for work done, not work promised.
When does a knock down rebuild make sense?
- The block is in a location you cannot replace
- The existing home is beyond sensible renovation
- You want a modern, energy-efficient home on a block you already know
- A move would trigger selling costs and stamp duty on a new purchase
- The council allows the type of home you want to build
The reverse is also true. If the site is steep, heritage listed, flood affected or heavily restricted, a rebuild may cost more than moving. Our renovation loans and home extension loans pages are worth a look if keeping part of the old house is a better path.
How is a rebuild loan structured?
| Stage | What happens | Typical finance effect |
|---|---|---|
| Before building | Plans, approvals, soil tests, demolition permit | Costs you may need to pay upfront or include in the budget |
| Demolition | Old home removed and site cleared | Often the first draw, or a separate cost |
| Slab or base | Foundations laid | First building payment |
| Frame, lock-up, fixing | Structure and fit-out | Further stage payments |
| Completion | Final inspections and handover | Final payment, then principal and interest repayments start |
Interest is usually charged on the amount drawn rather than the full limit. Our guide to construction loan progress payments and the broader how loan drawdowns work explain the mechanics.
What do lenders look at for a rebuild?
Equity and valuation. Lenders value the land and the proposed finished home, often looking at the total loan against that finished value.
The building contract. A fixed-price contract with a licensed builder is easier to fund than rough estimates. Plans, specifications and approvals should line up.
Your income and existing debts. The old mortgage is usually rolled into the new facility, so lenders test the whole amount. See our serviceability guide.
Living arrangements. Rent while you rebuild adds to your costs, and lenders may ask about it.
The builder. Licence, insurance and financial standing matter because progress payments depend on their work.
What hidden costs catch owners out?
- Demolition, asbestos removal and site clean-up
- Soil tests, surveys, engineering and council fees
- Utility disconnection and reconnection
- Temporary accommodation and storage
- Landscaping, fencing, driveways and window coverings
- Interest during the build
- A contingency for variations
Ask your builder for a clear schedule, and budget a buffer for the unexpected.
How Ownright approaches rebuild finance
Trevor Scott and the team have arranged property finance for many years, and rebuilds are a favourite because the answer is rarely a straight line. We look at your current mortgage, your equity and the builder’s contract, then decide whether a mainstream construction loan, a non-bank facility or a staged private arrangement fits best.
If the bank has said no because of income structure, a recent credit blemish or a project that does not tick every box, we search for lenders who judge the whole picture. Our difficult home loans page explains how we think about files like that. Speed depends on the lender and how quickly the plans and paperwork arrive, so we help you assemble them early.
An illustration
Illustrative scenario only. An owner-occupier has a run-down home on a good block and has found a builder. The owner runs a small business, and the bank is uncomfortable with the way income is reported. A broker could look at lenders that accept averaged income, roll the existing loan into a staged facility and plan temporary accommodation costs into the budget.
What mistakes should I avoid?
- Signing the building contract before finance is approved
- Forgetting to budget for temporary accommodation
- Choosing a builder only on price without checking licence and insurance
- Starting demolition before approvals are in place
- Using up the whole budget without a contingency
What documents should I have ready?
- Title, rates notice and current loan statements
- Plans, specifications and approvals or a planning pathway
- A fixed-price building contract and the builder’s licence details
- Income documents: payslips or tax returns and BAS
- A list of assets and debts, per our documents guide
Can I do a knock down rebuild if I do not own the land yet?
Yes, though the path is different. If you are buying a house specifically to demolish it, the purchase is the first step and stamp duty will generally apply to the purchase. Some lenders will fund the purchase and the build in one structure, others use a short-term loan first and refinance into a construction loan when the plans are approved. Check with your state revenue office about what applies where you are buying, and speak to us before you sign the contract so the timing of finance, approvals and demolition lines up.
What happens if the project costs more than planned?
Overruns are common on building projects, and lenders do not usually increase the limit mid-build without a new assessment. A contingency in the original budget is the best protection. Some owners also keep a small cash reserve outside the loan. If a variation is likely, tell us early, because it is much easier to structure a buffer into the facility at the start than to ask for more halfway through.
Ready to start fresh on your own block?
Sounds like you’re looking for a knock down rebuild loan. We’re the lending experts in rebuilds that need a different kind of lender, so click the button below and see if you qualify and get your builder’s start date locked in.
How it works, step by step
- 1
Step 1
Share your block details, builder's quote and what you owe on the existing home.
- 2
Step 2
We check how your current loan can be rolled into a construction facility, or replaced.
- 3
Step 3
We help line up approvals, the building contract and the lender's valuation of the finished home.
- 4
Step 4
Funds are released stage by stage, and we help keep the project moving.
Frequently asked questions
How does a knock down rebuild loan work?
The lender usually treats the project as a construction loan on land you already own. Your existing mortgage may be refinanced into the new facility, and funds are released in stages as demolition and each phase of the build are completed. Interest during construction is typically charged only on the amounts drawn so far.
Do I pay stamp duty on a knock down rebuild?
Usually not on the demolition and rebuild itself if you already own the land, because stamp duty is generally charged when property changes hands. Rules differ by state and there can be exceptions when a purchase is involved, so check with your state revenue office or conveyancer before relying on this.
Where do I live during the rebuild?
You will normally need temporary accommodation for the duration of the build, often renting nearby. Lenders may ask how you will cover rent and storage on top of loan costs, so include that in your budget. A realistic timeline from your builder helps you estimate the cost.
Can I use equity in the old home to fund the rebuild?
Yes, that is common. Lenders look at the value of your land and the expected value of the finished home against the total borrowing. The more equity you have, the easier the file tends to be. We run the numbers with you before you commit to a builder.
Is a knock down rebuild cheaper than buying a new home?
Sometimes, particularly when you want to stay in the area and avoid selling and buying costs. It can also cost more than expected if demolition, site works or approvals blow out. We help you compare it against the cost of moving, then work with your builder's quote.
Can I get a rebuild loan if I am self-employed or have credit issues?
Often there is a path. Lenders and structures vary, and tax returns, BAS or an accountant's letter may be needed for self-employed owners. Credit issues require context and sometimes a different lender. Tell us what has happened and we will approach lenders likely to listen.