If your builder becomes insolvent, dies or disappears, your construction loan stops paying the builder, but the money already drawn is still owed and interest continues. In NSW, the Home Building Compensation Fund can cover the loss of your deposit and the extra cost to finish the work, up to $340,000 per policy. Your lender will want a new fixed-price contract before releasing more funds.

Builder collapse at a glance
Item What happens
Progress payments Stop until there is a new builder and contract
Money already drawn Still owed; interest continues
HBCF claim Loss of deposit and cost to complete, up to $340,000
Defects later Major defects 6 years, other defects 2 years from completion
Your lender Needs a new contract and often a new valuation

What does the HBCF cover?

The Home Building Compensation Fund, run by icare, is last-resort insurance for residential building work in NSW. It is required for most residential work over $20,000, before work starts or a deposit is paid. If a trigger event happens, such as the builder becoming insolvent, dying, disappearing or having their licence suspended for not paying a tribunal or court money order, you may be covered for incomplete work, including a lost deposit and the cost to finish, and for defects. The maximum claim is $340,000 per policy for policies issued from 1 February 2012.

What happens to your construction loan?

The lender only pays for work actually done, so if the builder stops, the next payment is not released. You continue paying interest on the amount already drawn. To restart, the lender usually needs a new fixed-price contract with a licensed builder, a new valuation or quantity surveyor’s report, and evidence of how any cost increase will be met. The construction loans page explains how progress payments work.

What if the cost to finish is higher?

It usually is: a new builder prices the remaining work at today’s costs and may need to fix earlier work. The HBCF claim can cover the difference, within the limit. If the claim takes time or the total exceeds the limit, you may need extra funds, a loan increase or a longer construction term. Speak to your lender early; the construction buffer scenario shows why a contingency matters.

What should you do first?

  1. Confirm the trigger event, for example from the administrator or liquidator.
  2. Check your HBCF certificate and policy number.
  3. Secure the site and document the work completed.
  4. Contact icare about a claim.
  5. Tell your lender and broker, and pause any further payments to the builder.

How do you protect yourself before you build?

  • Check the builder’s licence and HBCF certificate before paying anything.
  • Never pay ahead of the progress schedule.
  • Keep a contingency in your budget.
  • Use a fixed-price contract and avoid large variations.

The construction loan document checklist lists what lenders need, including the HBCF certificate.

Questions people ask

What happens if my builder goes broke in NSW?

You may claim on the Home Building Compensation Fund for a lost deposit and the cost to finish, up to $340,000, once a trigger event has happened.

Do I keep paying my construction loan if the builder stops?

Yes, interest on the drawn amount continues. Further payments wait for a new builder and contract.

Does HBCF cover delays?

No. It covers incomplete and defective work after a trigger event, not delays.

How do I check my home building compensation certificate?

Ask your builder for the certificate before you pay a deposit, then check it at verify.licence.nsw.gov.au. icare runs the Home Building Compensation Fund; NSW Fair Trading licenses builders.

Charles Touma works with your lender to restart a stalled build, from the new contract to any loan increase. A free 30-minute call covers it. General information only, not legal, insurance or credit advice.

Sources: icare, what HBCF is; icare, what HBCF covers; icare, making a claim, checked 18 October 2026.

General information only, not credit, legal or tax advice. Your situation is assessed properly before any recommendation. Government scheme details change; figures are current at the time of writing.