Protecting your money when you build a home in Australia

A residential build is paid through a drawdown schedule, a set of progress payments tied to stages of construction such as base, frame, lock-up, fixing and completion. As each stage begins, you release the next payment, often straight into the builder's own bank account.

The catch is timing. You are paying for work that has not been done yet, and once that money lands in the builder's account it is mixed with everything else they are running. It pays their suppliers, their trades and their wages across every job they have on. If the business is healthy, this is normal and it works. If the business is not, the structure means your money can be absorbed by shortfalls on other projects before work begins on yours.

If the builder then becomes insolvent, you are usually an unsecured creditor. That means you stand near the back of the queue, behind secured lenders and employee entitlements, alongside other unsecured creditors including the tax office. The money you paid ahead for work you never received is often gone.

Most owners assume building insurance covers this. It helps, but it is far narrower than people expect, and the name and rules change from state to state. In Victoria it is Domestic Building Insurance. In New South Wales it is the Home Building Compensation scheme. Other states run their own versions.

A few things are true of these schemes across the board, and they are worth understanding before you rely on them.

It is insurance of last resort, not a money-back guarantee. It is designed to respond only in defined events, typically the builder's death, disappearance or insolvency, and only after other avenues are exhausted. It does not simply hand your money back on demand if a job stalls or a relationship breaks down.

It is capped, and the cap may not cover your loss. Each scheme has a maximum payout, and on a larger build the cap can sit well below what you have actually paid. Check the current cap for your state, because these figures change.

It only helps if the policy was actually taken out. This is the gap that hurt so many families. When Porter Davis collapsed in 2023, a number of customers discovered the builder had taken their deposit but had never put the required insurance policy in place for their job. There was no cover to claim against. The Victorian Government later stepped in with a scheme to reimburse those unprotected deposits, but that was an emergency response, not something owners could have counted on. We look at this in more detail in is domestic building insurance enough to protect your deposit.

Claims take time, and time is the one thing you do not have mid-build. Even where cover exists and applies, a claim can take months to resolve while your half-built home sits exposed to weather and your loan keeps accruing interest.

The other two options owners fall back on are weaker still. One is to pay each progress claim into the builder's account and simply hope the business stays solvent. The other is to chase the loss through the courts after a collapse, which is slow, expensive and usually recovers little, because you cannot get money from a company that has none.

The problem with every option above is that they all try to recover your money after it has already been lost. The structural fix is to stop the loss happening in the first place, by not letting the builder hold money for work that has not been done.

Under a custody model, your funds for the build sit in a separate, regulated custodial account rather than in the builder's bank account. The money is released stage by stage, and only once the relevant work has been verified as complete. The builder gets paid promptly for work they have actually done, and your money for future stages stays protected until those stages are reached.

The difference shows the moment something goes wrong. If the builder fails, the funds still sitting in custody were never the builder's money to spend, so they sit with the custodian rather than in the builder's operating accounts. They can be used to pay the trades for verified work, with the remainder returned to you. The aim is to keep the money that is ever exposed to the work in progress, rather than the whole remaining contract. We walk through that scenario step by step in what happens if your builder goes into liquidation mid-build.

BuildFair is built around exactly this idea. Owner funds are held in regulated custody with Kobble, operated by Yondr Money Pty Ltd under AFSL 545391. BuildFair never holds your funds itself. The money is released against progress milestones once the work for that stage is verified. The full architecture is set out on our trust and security page.

If a builder using BuildFair becomes insolvent, the platform follows a set protocol: outflows are frozen, trade invoices that have been approved for completed work are paid, and the remaining balance is returned to the owner. The trades who have done the work get paid, and you get back the money you had not yet spent.

It is worth being clear about what this is and is not. BuildFair is not insurance and does not replace your state's building insurance, which still covers things like defects and incomplete work after the fact. What custody does is reduce the amount that is ever exposed in the first place, so there is far less for insurance to have to recover later. The two work alongside each other.

This is general information, not legal or financial advice. Insolvency outcomes depend on your circumstances and the law in your state, so speak to a construction lawyer for advice on your situation.