Over 1,600 construction insolvencies in nine months. Know the signs before it is too late.
Building a home in Australia is a major financial commitment. When a builder collapses midway through a project, the consequences can be severe. You may lose progress payments already made, face months of delays, and be left with a half-built home and a construction loan still running. Knowing the signs your builder is going bust could protect your deposit, your finance, and your future home.
Why builders fail
Fixed-price contracts became a serious trap for builders after the pandemic. When a builder signs a fixed-price contract, any increase in material or labour costs comes directly out of their profit margin. Construction costs rose more than 14% in the year to December 2022, squeezing builders who had locked in prices months earlier.
Shortages of skilled tradespeople drove labour costs higher. Supply chain disruptions made materials scarce and expensive. A building company managing dozens of projects simultaneously can fall into deep trouble if even a handful run at a loss.
ASIC data recorded 1,601 construction insolvencies between July 2022 and March 2023, a seven-year high. Almost a third of those insolvencies came in the first three months of 2023 alone. The risk to new home builders remains real.
Signs builder going bust
Step 1. Call your lender
Your lender needs to know as soon as possible. Construction home loans release funds in stages tied to building milestones. Once a builder is insolvent, the lender will pause further drawdowns. They can also advise on a repayment pause while you work through the situation.
Being upfront with your lender protects your credit history. Lenders have dealt with builder insolvencies before and generally prefer to find a solution with you rather than take action on a half-built property.
Speak to a broker at Serres Property Finance to get help navigating your lender conversation and understanding all your options.
Step 2. Get legal advice
A building and construction lawyer can review your contract and explain exactly what rights you have. Your contract may include provisions that protect your deposit or require the builder to carry domestic building insurance, also called home warranty insurance in most states.
Domestic building insurance pays out when a builder becomes insolvent before completing your home. Coverage limits and conditions vary by state, so review your policy carefully. Your state’s consumer protection agency can guide you through the claims process.
Step 3. Find a new builder
Getting another builder to take over a partially built home is possible, though it takes time and careful planning. You will need a new contract, an updated schedule of works, and a revised cost estimate. The new builder must also inspect the existing structure and confirm it meets current building codes.
Lenders are cautious about funding incomplete construction projects. Use our borrowing power calculator to check your current finance position before you approach a new lender. If previous applications have run into trouble, our guide on why home loans get declined covers the most common issues and how to resolve them.
Common questions
Q: Can I get my deposit back if my builder becomes insolvent?
This depends on your contract and whether your builder held domestic building insurance. If insurance is in place, you may be able to claim for the lost deposit and the cost of incomplete work. Contact your state’s consumer protection agency to find out how to lodge a claim.
Q: Will my bank pause my construction loan while I find a new builder?
Your lender will pause drawdowns once the builder enters administration. Most lenders are open to discussing a repayment pause while you work through the situation. Contact them early, keep them updated regularly, and ask for all decisions in writing.
Q: How do I check a builder’s financial stability before signing a contract?
Search the builder’s company name and ABN on the ASIC register for any deregistration notices or legal action. Ask for references from recent clients and speak to subcontractors at active sites about payment history. A licensed building surveyor can also inspect completed work on a current job site before you commit.