If you’re building a new home in Armstrong Creek, Lara or Torquay (or you’ve signed a house-and-land contract anywhere in Australia), the news this fortnight has probably worried you. Bathla Group, a Sydney developer-builder described in ABC and Bloomberg reporting as one of the country’s largest affordable home builders, has entered voluntary administration, reportedly owing around $3.4 billion to private lenders, with more than 2,000 apartments part-built, a pipeline of some 14,000 homes in doubt and roughly 1,000 buyer deposits caught up in the process.
Bathla is the headline, but it isn’t an isolated story. So rather than adding to the anxiety, this guide answers the practical questions we’re hearing from clients across Geelong, the Bellarine and Melbourne’s west: what actually happens to your deposit and your construction loan if your builder fails, what Victoria’s brand-new home warranty scheme covers, and, most usefully, how to structure your build finance so a builder collapse is a setback rather than a catastrophe. If you’re still weighing up whether to build at all, our guide to building vs buying in 2026 is a good companion read.
The short version, drawn from ABC reporting on the Bathla collapse: construction costs remain dramatically higher than before COVID (around 51% higher on reported figures), while many builders are locked into fixed-price contracts signed when costs were lower. Add a shortage of trades, softer property prices that squeeze project margins, and the interest rate rises of 2026, and the result is that builders can be busy, even booked out, and still be losing money on every job. Reported insolvency statistics for FY2026 put 3,472 construction companies into insolvency (about 24.5% of all Australian company insolvencies), with small builders making up nearly two-thirds of the failures.
Australian construction companies were reported to have entered insolvency in FY2026, roughly one in four of all company insolvencies nationally, according to figures reported by the ABC. The one sliver of good news: it was the first year in five that the number edged down. Figures are as reported at the time of writing. Check ASIC’s published statistics for current data.
None of this means you shouldn’t build. It means you should build the way lenders, warranty insurers and experienced brokers have always quietly insisted on: deposit capped, payments in arrears, insurance certificate sighted before a dollar moves. Here’s how each layer works.
People often think of a construction loan’s staged structure as red tape. In a year like this one, it’s your main protection. Unlike a standard home loan, a construction loan isn’t handed over in one lump sum. The lender releases money in progress payments tied to completed stages (typically base/slab, frame, lock-up, fixing and completion) and pays the builder in arrears, after the work is done. Most lenders also send a valuer to inspect before releasing each payment, and you’re generally only charged interest on the amounts drawn so far.
Think about what that means in an insolvency: if your builder fails at frame stage, the money for lock-up, fixing and completion is still sitting safely undrawn with your lender, not in the builder’s collapsed accounts. Your exposure is largely limited to your capped deposit and any work paid for but incomplete or defective, which is precisely the gap the warranty scheme below is designed to cover. It’s also why the single most dangerous thing a homeowner can do is pay a builder ahead of the payment schedule to “help with cash flow”. Money paid ahead of completed work sits outside almost every protection you have.
Victoria also caps the deposit a registered builder can take on a major domestic building contract at a small legislated percentage of the contract price. The cap has historically been 5% for larger contracts. Confirm the current threshold and percentage with Consumer Affairs Victoria or the Building and Plumbing Commission before you sign, and treat any builder asking for more than the legal cap as a walk-away red flag.
For years, Victoria’s domestic building insurance (DBI) was famously a “last resort” scheme: you could generally only claim if your builder had died, disappeared or become insolvent. The collapses of recent years exposed how thin that protection felt in practice. From 1 July 2026, Victoria moved to a first-resort home warranty scheme administered by the new Building and Plumbing Commission (BPC), and the changes are significant for anyone signing a build contract this spring. The table below summarises the key differences as reported in legal analysis of the reforms. Scheme details are new and may be refined, so confirm the current rules with the BPC before relying on them.
| Feature | Old scheme (pre 1 July 2026) | New first-resort scheme (from 1 July 2026) |
|---|---|---|
| When you can claim | “Last resort”: generally only if the builder died, disappeared or became insolvent | “First resort”: claims can be made when work is defective or incomplete, without waiting for the builder to fail |
| Who runs it | VMIA (domestic building insurance) | Building and Plumbing Commission (BPC) |
| Maximum cover | Up to $300,000 per dwelling | Reported at up to $400,000 per dwelling |
| Incomplete work | Sub-limits applied | Reported cap of 30% of the contract value for incomplete work |
| When cover starts | On the builder taking out the policy | Reported to apply from signing the contract, even if the builder never paid the premium |
| Which contracts | Domestic building work over $16,000 | Reported threshold of contracts over $20,000, for homes of three storeys or less |
Two details in that table deserve underlining. First, cover applying from the moment you sign (even if a builder never paid the premium) closes the loophole that burned buyers in earlier collapses. Second, the higher $400,000 cap matters in a market where the cost of finishing a half-built home has risen sharply. For apartment buyers, the reforms also reportedly require developers of buildings over three storeys to provide a developer bond or ten-year “decennial” insurance covering serious structural defects, worth asking about before you commit to an off-the-plan purchase, alongside the stamp duty savings covered in our guide to Victoria’s off-the-plan concession.
Building outside Victoria? The protection exists everywhere but the details differ: NSW runs the Home Building Compensation Fund through icare, Queensland has the QBCC Home Warranty Scheme, and other states and territories have their own arrangements with their own caps, thresholds and exclusions. Check the relevant state authority’s current rules before you sign, and note that in every state, warranty schemes are a safety net, not a substitute for choosing a solvent builder in the first place.
Stop payments and secure the site. Don’t make any further payments to the builder or the administrator without advice. Photograph the site thoroughly, and check with your conveyancer or lawyer before changing locks or engaging trades: the contract usually isn’t automatically terminated by an administration, and acting too fast can prejudice your position.
Call your lender, or better, have your broker call them. Lenders deal with builder insolvencies constantly and most have hardship and workout processes for exactly this scenario: pausing progress payments, extending the construction period, and re-approving drawdowns for a replacement builder once you have one. What lenders don’t love is silence. A build that quietly stalls for six months is a bigger problem for your loan than one where the lender knew within a week.
Lodge your warranty claim early. Under the new Victorian scheme you reportedly have 12 months from discovering a loss to notify the BPC, but earlier is always better, and the claim process will drive what you’re reimbursed for incomplete and defective work before a new builder prices the completion.
Get the completion properly costed before recommitting. Completing a half-built home usually costs more than the unspent balance of the original contract: new builders price in the risk of warranting someone else’s work. That gap is where finance advice matters: depending on your equity and the warranty payout, options can include restructuring the existing construction loan, extending the loan amount, or in some cases refinancing the project entirely. Every path runs through a fresh valuation, so realistic numbers early beat optimistic numbers late.
Picture a couple building a four-bedroom home in Armstrong Creek on a fixed-price contract, financed with a construction loan. Their deposit was capped at the legal percentage, and their lender had released the slab and frame progress payments after inspections; payments for lock-up, fixing and completion were still undrawn. When their builder went into administration, their real exposure wasn’t the whole contract: it was the deposit and the partly completed frame-stage work. Their warranty insurance responded for the incomplete work within its caps, their broker had the lender pause the loan while a replacement builder quoted, and the undrawn funds (plus a modest loan increase supported by a new valuation) covered the higher completion price. It cost them time and stress, but not their home. The scenario is illustrative, not a real client file, but the mechanics are exactly why the staged structure exists.
You can’t read a builder’s balance sheet, but you can stack the odds. Check the builder holds current registration for the class of work; search their company name for court actions, and ask directly how long they’ve traded under the current entity. A long trading history under one name means more than a glossy display home. Ask for recent references from clients at your stage: mid-build, not just handover. Be wary of quotes dramatically below the pack; in a market where costs are reported to be about half again higher than pre-COVID, the cheapest fixed price in town is sometimes the price of a builder buying work to stay liquid. And insist on sighting the home warranty insurance certificate for your specific project before paying your deposit. Under the new Victorian scheme cover reportedly attaches at signing regardless, but a builder who resists providing the certificate is telling you something.
Your finance choices are part of the vetting too. Getting pre-approval before you sign a build contract keeps you from being rushed, and if you’re buying land first, our land loan guide covers how the two loans fit together. Whether you’re building in Armstrong Creek or Lara, renovating in Ocean Grove, or funding a project in Melbourne’s west around Werribee, the structure is the same: capped deposit, staged payments in arrears, insurance sighted, lender informed.
Never let anyone talk you into paying for a stage before it’s complete, including “variations” invoiced ahead of the work. The progress payment schedule in your contract should mirror the stages your lender recognises, and your lender’s inspection before each drawdown is a free second set of eyes on your build. If a builder pressures you to bypass the lender and pay directly “to keep things moving”, that’s not a paperwork shortcut. It’s the single biggest warning sign in residential construction, and it moves your money outside both the loan’s protections and, potentially, your warranty cover.
It depends on what stage you’re at and your state’s warranty scheme. In Victoria, deposits on major domestic building contracts are capped by law at a small percentage of the contract price, and the home warranty scheme can respond for losses within its limits. Under the new first-resort scheme, cover is reported to apply from the moment you sign the contract. Deposits paid above the legal cap, or payments made ahead of completed stages, are far harder to recover, and you may be left as an unsecured creditor in the liquidation. Confirm your position with the Building and Plumbing Commission and get legal advice early.
Generally yes. The loan is between you and your lender, not the builder, and interest keeps accruing on the amounts already drawn. The good news is that you’re usually only paying interest on the drawn portion, and lenders have well-worn processes for builder insolvencies: pausing further drawdowns, extending the construction period, and in hardship cases restructuring repayments. Contact your lender or broker as soon as you know there’s a problem. Options are widest early.
From 1 July 2026, Victoria’s new first-resort home warranty scheme, administered by the Building and Plumbing Commission, replaced the old last-resort domestic building insurance. It reportedly covers eligible contracts over $20,000 on homes of three storeys or less, with cover of up to $400,000 per dwelling and a cap of 30% of the contract value for incomplete work, and cover is reported to apply from contract signing even if the builder never paid the premium. The scheme is new, so confirm current caps, eligibility and claim time limits directly with the BPC.
No check makes the risk zero, but the basics stack the odds: verify current builder registration, prefer a long trading history under the same entity, speak to references who are mid-build now, be sceptical of quotes far below competitors, sight the warranty insurance certificate before paying a deposit, and never pay ahead of completed stages. Structure matters too: a construction loan’s staged, in-arrears payments with lender inspections mean most of your money is never exposed to work that hasn’t been done.
We’ll structure your construction loan so the protections actually protect you: staged payments, the right lender for your build, and a plan B if things go wrong. For builders and buyers in Geelong, Armstrong Creek, the Bellarine, Melbourne and Australia-wide. Plain English, no obligation.
With years of experience in mortgage broking and finance, Melanie helps first home buyers, refinancers, investors and business owners across Geelong, the Bellarine, the Surf Coast, Melbourne and regional Victoria make their money work harder. Contact our team on 03 9020 2699.
