Reviewed by Angela Downie, Financial Adviser
Turnkey and progress payment contracts differ mainly in when the purchase or building costs are paid and when home-loan funds are drawn down.
With a typical turnkey purchase, you pay an initial deposit under the contract and the balance when the completed property settles. With a progress payment construction loan, funds are released in stages as the build reaches agreed milestones. Interest is generally calculated on the amount already drawn.
These differences can affect your cash flow during construction, the documents and valuations required, the risks you carry and how long your finance needs to remain available. The precise position depends on the contract and lender, so both should be checked before you commit unconditionally.
If you are still deciding between property types, read our guide to buying a new build or an existing house.
| Comparison | Turnkey purchase | Progress payment build |
|---|---|---|
| What you are buying | Usually a completed home from a developer, sometimes before it has been built | Land and building work carried out under a construction contract |
| When payments are made | An initial contract deposit, followed by the balance at settlement | Staged payments as specified parts of the build are completed |
| When the lender advances funds | Usually at settlement of the completed property | Progressively as approved invoices or drawdown requests are accepted |
| Interest during construction | The home loan is generally not drawn until settlement | Interest is generally charged on the amount drawn to date |
| Ownership during construction | The developer commonly retains ownership until settlement, subject to the contract | The borrower will commonly own the land, with the lender taking security over the property |
| Administration | Fewer borrower-managed drawdowns | More documents, invoices, valuations or inspections may be required |
| Main finance risk | The finance approval may expire or need reassessment before a delayed settlement | Cost overruns, variations, delays or valuation shortfalls may affect completion funding |
| Control over the build | Usually less scope for changes | Often more involvement and scope to make choices, subject to the contract and budget |
This is a general comparison. The contract, not its marketing label, determines what you must pay, when ownership transfers and which risks you accept.
Under a typical turnkey contract, a developer or building company delivers a completed home. You may pay an initial deposit before construction begins, but the remaining purchase price is normally due when the property settles.
Although people often refer to a “turnkey loan,” the lender is commonly financing the completed purchase rather than advancing construction money throughout the build. The home loan may therefore remain undrawn until settlement, although you may continue paying rent or other housing costs while you wait.
Turnkey does not automatically mean every item is included. Landscaping, fencing, appliances or other work may sit outside the price. Your lawyer should check what is included, how the deposit is held and what happens if the project is delayed or cannot be completed.
A lender’s approval does not necessarily remain available until an open-ended future settlement. If construction takes longer than expected, the lender may need updated information, a new valuation or a fresh assessment. Changes to the borrower, lender policy or completed property can affect the result.
Before signing, establish the expected completion date, the lender’s approval period and what the contract requires if finance must be reassessed. Our guide to mortgage lending criteria in New Zealand explains the broader assessment factors.
With a progress payment contract, building costs are paid in stages. The lender approves an overall construction facility, but the loan is drawn progressively as agreed work is completed.
A schedule might include payments for the land, foundations, framing, lock-up and completion. The actual stages and amounts come from the contract and approved funding arrangement.
The builder usually provides an invoice or payment claim for a completed stage. A lender may also require a valuation or inspection before releasing funds. This helps confirm progress or value; it is not independent confirmation of workmanship or compliance.
“Progress payment” and “progressive payment” are both used to describe staged payments. In mortgage lending, a progressive drawdown means the loan balance increases as additional funds are released.
Interest is generally calculated only on the construction funds drawn so far, not the full approved facility from the first day. The amount payable can therefore increase as the build progresses and more money is advanced.
The repayment arrangement and interest rate depend on the lender and loan structure. Borrowers also need to allow for rent, rates, insurance and other costs that may continue before the new home is ready.
Requirements vary, but a lender may ask for:
The borrower’s income, debts and other financial information will also be assessed. Our home loan application guide explains the evidence lenders commonly review when assessing an application.
Progress payment finance requires a credible plan for completing the build. A lender may not automatically increase the approved facility because materials cost more, work is delayed or you agree to upgrades during construction.
Before committing, check:
A lower valuation or cost overrun can leave a funding shortfall that must be resolved before the build can continue or the lender releases the final amount.
“Practical completion” and readiness for final loan drawdown are not always the same point. The lender may separately require a final valuation, insurance, title or settlement documents and evidence that its completion conditions have been met.
A lender may require a Code Compliance Certificate before final drawdown or settlement, along with other completion evidence. Check the lender’s specific completion requirements before signing.
Your lawyer should review the contract and explain your legal obligations. For independent information, see Building Performance’s guidance on contracts for building projects and Settled’s guidance on buying property off the plans.
A turnkey purchase may suit someone who wants a more straightforward settlement, does not want to manage loan drawdowns and prefers not to start servicing the home loan while construction is underway. It may provide less scope to change the design, and the buyer still needs to manage completion delays and finance-expiry risk.
A progress payment structure may suit someone who owns or is buying land, wants greater input into the build and can manage staged drawdowns, construction-period costs and possible variations. It usually involves more administration and exposes the borrower more directly to the project budget and completion risk.
Neither structure is automatically cheaper or easier to finance. Compare the contract price, included work, build-period interest and housing costs, contingencies, completion timing and lender requirements.
Deposit requirements vary and this page does not provide a fixed percentage. First-home buyers should use our New Zealand first-home deposit guide, while investors should use our investment-property deposit guide.
Before becoming unconditional, establish:
Do not rely only on the development’s sales material. Ask your lawyer to review the agreement and confirm your obligations before you sign or waive conditions.
Platinum Mortgages can help establish how the proposed contract fits available lender policies, explain expected drawdowns and conditions, assemble application evidence and communicate with the lender. Legal, tax, valuation and building-quality advice must come from the appropriately qualified professionals.
There is no universal lender preference that applies to every borrower and contract. Lenders have different requirements for developers, builders, valuations, contracts, drawdowns, deposits and completion. The suitable pathway depends on the whole proposal.
Neither is automatically cheaper. Compare the complete contract price, exclusions, variations, build-period interest and housing costs, valuation and legal costs, contingencies and completion risk.
No. A valuation or inspection arranged for a lender helps it assess construction progress or security value. It should not be treated as independent confirmation that all building work is defect-free or legally compliant.
Understanding the contract and finance together can help you identify timing, cash-flow and completion risks before you commit.
Contact Platinum Mortgages to discuss your proposed new build and the finance information that may be required.
Platinum Mortgages New Zealand Limited (FSP752271) is a Financial Advice Provider licensed and regulated by the Financial Markets Authority. Angela Downie (FSP742251) is a Financial Adviser at Platinum Mortgages who provides mortgage advice to New Zealand borrowers under that licence and has worked in the financial industry since 2006.
Angela helps new-build borrowers understand how a proposed contract, drawdown schedule, construction budget and completion timetable may affect their finance before an application is submitted or a contract becomes unconditional.
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