Construction Loans › What happens if my builder goes bust during construction?

What happens if my builder goes bust during construction?

If your builder becomes insolvent, work stops and you generally claim under your state domestic building insurance. You then arrange a new builder, and your lender will need to approve the new contract before funding continues.

Written by Ross McFarlane, Licensed Mortgage Broker (Credit Representative 526725). About the author

Why this matters

A builder failing mid build is rare but serious, which is why domestic building insurance and a solid contract matter. The insurance is designed to cover completing the work, and your lender will want a new fixed price contract before releasing further funds. Knowing this protection exists takes some of the fear out of building.

The key points

Domestic building insurance is designed for this.
Work stops until a new builder is arranged.
The lender must approve the new contract.
A solid contract and insurance protect you.

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Last reviewed: June 2026

General information only. This page provides general information about home loans and is not financial or credit advice, a quote, or a guarantee, and your personal circumstances have not been considered. Lending policies, interest rates, fees and eligibility vary by lender and change over time. Always confirm your own situation with a licensed mortgage broker or lender before acting. Ross McFarlane (Credit Representative 526725) is an authorised Credit Representative of Australian Associated Advisers Pty Ltd t/a Keylend, Australian Credit Licence 392169.