Established home values are falling while the cost of building keeps rising. On a new build, those two lines meet at the lender’s valuation, and the bill for any gap usually arrives with the last progress claim.
National home values have now fallen for six months in a row.
Cotality’s Home Value Index dropped 1.1 per cent in September, leaving dwelling values 5.2 per cent below the record high set in March 2026. Across the capital cities, 97 per cent of suburbs lost value over the three months to the end of September.
The cost of building has gone the other way. House construction output prices rose 2.0 per cent in the June quarter, the largest quarterly rise since September 2022, and 5.9 per cent over the year, according to the Australian Bureau of Statistics.
For a builder, those two numbers meet in one place. The lender’s valuation of the finished home. And the bill for any gap between that valuation and the contract price tends to land at the least convenient moment of the job, the final claim.
A construction loan is sized against a valuation, not the contract price
A construction loan is not approved against the contract price. It is approved against a valuation.
Commonwealth Bank’s construction loan guide describes an as if complete valuation, ordered during formal approval, that estimates what the property will be worth once construction is finished. The same guide says any money the client is putting in from their own pocket must be used first, before the bank pays a progress claim from the loan.
NAB’s guide to building and renovating sets the ceiling out plainly. Payments can only be made up to the valuation amount for each stage of construction. Where the loan balance plus a builder’s claim exceeds the funds approved, the bank treats the difference as a cost overrun that the client pays from their own funds, and progress payments can be stopped until it is met.
What is an as if complete valuation?
An as if complete valuation is a lender’s estimate of what a property will be worth once the planned home is built, assessed before construction starts. It sets the ceiling on what the lender will advance across the build. It is separate from the contract price, and the two do not have to match. Where the valuation is lower, the client funds the difference, and major lenders require the client’s own contribution to be spent before loan funds are drawn.
Why a valuation shortfall surfaces at the final progress claim
The order of payments explains the timing. The client’s cash goes first, then the loan carries the rest, stage by stage, up to its approved limit.
By the last stage there is no buffer left in the sequence. Commonwealth Bank’s indicative schedule puts completion at roughly 10 per cent of the funds required. That final 10 per cent is drawn against whatever room is left under the approved amount.
Anything that has pushed the total above that amount shows up here. Variations are the usual cause. NAB says any variation to the building contract must be approved by the bank before it is agreed with the builder, and where the funds required increase, the client may need to pay for them directly. A client who has spent their buffer on upgrades during fit out can reach handover with a final claim the loan will not cover.
A construction loan is not approved against the contract price. It is approved against a valuation.
The valuer also comes back at the end. NAB lists an inspection and valuation of work completed when the final progress claim is requested, and Commonwealth Bank arranges a final inspection before it makes the last payment to the builder.
The market matters most when anything has to be reassessed. NAB says a request for additional funds after approval is assessed in full against its normal lending criteria. Commonwealth Bank requires construction to start within 12 months of the disclosure date on the loan contract, so a job that stalls before slab can run up against that window.
Any fresh assessment draws on recent sales, and recent sales are now thin. Cotality estimates home sales over the past three months were 19.1 per cent lower than a year earlier nationally, and most of the sales that did happen were recorded as values fell.
Security of payment rules for a stalled final claim differ by state
When the final payment stalls, the path to recovering it depends on where the house is.
| State | Security of payment against an owner occupier | Where a domestic payment dispute goes |
|---|---|---|
| NSW | Applies to owner occupier contracts entered into from 1 March 2021 | Statutory payment claim and adjudication |
| Queensland | Adjudication cannot be used for domestic building work with a resident owner | QBCC dispute resolution, then QCAT |
| Victoria | Does not apply to a domestic building contract with a building owner, unless the owner is in the business of building residences | Domestic Building Dispute Resolution Victoria, then VCAT |
| Western Australia | Excludes contracts directly with homeowners for home building work valued at $500,000 or less | Outside the security of payment scheme |
In NSW, security of payment laws have applied to owner occupier construction contracts since 1 March 2021. A builder can serve a payment claim on a homeowner, and where the contract is silent on timing, payment falls due 10 business days after the claim is made.
In Queensland, the QBCC states that adjudication cannot be used where a contract for domestic building work is with the resident owner of the property. Before QCAT will hear a domestic building dispute, the parties must go through the QBCC’s dispute resolution process and attach the outcome letter.
In Victoria, the security of payment Act does not cover domestic building contracts between a builder and a home owner. Eligible domestic building disputes, including disputes over payment, must first be lodged with DBDRV before an application can go to VCAT.
In Western Australia, the 2021 security of payment Act excludes contracts made directly with homeowners for home building work valued at $500,000 or less.
In none of these states does a short valuation change what the contract says the client owes. It changes whether the client can pay it, and in most states it means how building payment disputes are resolved runs through conciliation rather than a fast statutory claim.
The valuation gap is set long before handover
Rates are adding weight on the same side of the scale. The Reserve Bank lifted the cash rate to 4.60 per cent from 30 September, its fourth rise of 2026, which reduces what the same client income can borrow if anything has to be reassessed.
None of this is new mechanics. It is what we first flagged on completion valuations when prices flattened in May. What has changed is the size of the move underneath contracts signed near the March peak.
The lender documents already put a cost overrun on the borrower, in writing. The valuation is set at approval. Each variation and each upgrade moves the total closer to the ceiling. By the final claim the arithmetic is finished, and the only open question is who carries the last 10 per cent while it is resolved.
On most jobs, that is the builder, through a building business’s cash flow position in the weeks after handover. It is one part of the wider housing market cycle, and it is the part that arrives with an invoice attached.
THE GOOD BUILDER TAKE
Falling prices do not change a single contract price. They change what that price is worth to the lender standing behind the client.
On a new build, that difference is fixed long before handover. At the valuation, at every variation, at every upgrade funded from the client’s buffer.
The final claim is simply where it becomes visible. In most states, it is also where the slowest path to payment begins.
For more conversations with builders working through this cycle, listen to The Good Builder Podcast and follow us for the latest industry analysis.
Your questions answered
The lender lends against its valuation, not the contract price, so the client funds the difference from their own money. Major lender guides say the client’s contribution is spent before loan funds are drawn, and that claims above the approved funds are treated as a cost overrun the borrower pays, with drawdowns stopped until it is met.
Because the client’s cash is spent first and the loan is drawn stage by stage up to its approved limit. Variations, upgrades and any reassessment all push the total toward that limit, and the last claim, roughly 10 per cent of the funds on one major lender’s indicative schedule, is drawn against whatever room is left.
It depends on the state. In NSW, security of payment laws have applied to owner occupier contracts entered into since 1 March 2021. In Queensland, adjudication cannot be used for domestic building work with a resident owner. In Victoria, the Act does not apply to domestic building contracts with a building owner unless the owner is in the business of building residences. Western Australia excludes contracts directly with homeowners for home building work valued at $500,000 or less.
Cotality’s Home Value Index fell 1.1 per cent in September 2026, the sixth consecutive monthly fall. National dwelling values are 5.2 per cent below the record high set in March 2026, and flat over the year.
Related articles
- Four Rate Rises in 2026. What the Latest One Does to Jobs Already Signed
- Property Prices Are Falling. Here Is What That Actually Means for Builders.
- Building Disputes in Australia
Last updated 7 October 2026. Home values: Cotality Home Value Index, September 2026, released 1 October 2026. Construction prices: ABS Producer Price Indexes, June quarter 2026. Cash rate: RBA decision of 29 September 2026.
GENERAL INFORMATION DISCLAIMER: This article is intended for general informational purposes only. It does not constitute financial, legal, or professional advice. Builders and industry professionals should seek independent advice relevant to their specific circumstances.
Author: TGB Editorial
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