Your builder has quoted £60,000 for a single-storey rear extension. He wants 10% up front, 15% when the foundations are signed off, and a payment ladder running through to completion. Five percent gets held back as retention.
Is that normal? Where is the line between a fair contract and a financial trap?
Tip
Quick answer
- Typical deposit: 10-20% of contract value, sometimes up to 25% on larger builds.
- Typical structure: Stage payments tied to building control milestones, with 5% retention held until 6-12 months after completion (the defects liability period).
- Top red flags: Cash-only, deposit above 25%, payments demanded ahead of work done, no written schedule.
- Protections: Tie every stage payment to a BCO inspection, hold the retention, use a JCT or FMB contract. Pay the deposit on a credit card if the contract is under £30,000 (Section 75 only protects contracts under that threshold, so larger builds need stakeholder accounts instead).
Why Builders Ask for Money Up Front
A builder starting an extension does not show up with a wheelbarrow and figure it out as he goes. Day one means a 1-tonne digger on a trailer, ready-mix concrete booked, blocks delivered, two labourers on site, and a concrete pour by Friday.
That first week alone runs £35,000–£50,000 of materials and labour. If the builder funded it from his own pocket on every project, he would be a bank, not a contractor. Most small extension firms turn over £85,000 to £400,000 a year on net margins of 3 to 5%. There is no buffer to cover £6,000 of trade spend before a single milestone is reached.
The deposit covers that gap. A reasonable deposit is not a builder taking your money. It is the working capital that keeps your job moving in week one.
For the underlying maths showing what the deposit actually pays for, see Justifying the Builder Deposit: A Worked Example with Real Numbers.
The Standard UK Payment Schedule
A clean small-builder contract for a single-storey extension usually breaks into six stages. The percentages vary by builder, but a typical split looks like this:
| Stage | When triggered | % of contract | On £60,000 |
|---|---|---|---|
| 1. Deposit | On contract signing | 10% | £6,000 |
| 2. Foundations | BCO foundation sign-off | 15% | £9,000 |
| 3. Walls and structure | Walls to plate height, steels in | 20% | £12,000 |
| 4. Roof and watertight | Roof on, windows fitted, building weathertight | 20% | £12,000 |
| 5. First fix and second fix | Plastering, electrics, plumbing, plaster skim | 25% | £15,000 |
| 6. Completion | Snagging signed off | 10% | £6,000 |
Some builders split this into seven or eight stages. Some bundle stages 5 and 6 together. The pattern holds: about a fifth of the value sits with the deposit and foundations, the bulk releases as the structure goes up, and the final tenth waits for snag sign-off.
Retention: The 5% That Sits
A separate mechanism runs alongside the stage payments. Retention is a percentage held back from each stage payment (usually 5%) and released at the end of the defects liability period, typically 6 to 12 months after practical completion. It exists to give your builder a financial reason to come back and fix defects that surface after he has packed up his tools.
Here is the same contract with retention applied:
| Stage | Stage payment | 5% retained | Net to builder |
|---|---|---|---|
| 2. Foundations | £9,000 | £450 | £8,550 |
| 3. Walls | £12,000 | £600 | £11,400 |
| 4. Roof | £12,000 | £600 | £11,400 |
| 5. Fit-out | £15,000 | £750 | £14,250 |
| 6. Completion + retention release at end of defects liability period | £6,000 + £2,400 | nil | £8,400 |
The retention pot of £2,400 sits in your account through the defects liability period. If the builder responds to snag items, the money releases. If he does not, you have a financial hook that no other clause in the contract gives you.
Many small builders push back on retention because it stretches their cashflow further. Hold the line. A 5% retention clause on a six-figure project is the cheapest insurance policy you will ever buy.
What's Normal vs What's a Red Flag
Most small UK builders offer payment terms that fall inside a reasonable band. The problems are at the edges.
| Behaviour | Normal | Red flag |
|---|---|---|
| Deposit | 10-15% of contract value | Above 25%, or a flat sum unrelated to first-week costs |
| Payment trigger | Tied to a building control inspection or measurable milestone | "When I say so", or vague calendar dates |
| Schedule format | Written, in the contract, with stage names and percentages | Verbal arrangement, or a single line in the quote |
| Cash | Final invoices and small extras can be cash | Whole job priced "for cash", no VAT receipts, no invoices |
| Materials advance | None, or a separate small advance for a specific delivery (kitchen units, bifold doors) | Large material payments demanded weeks before site delivery |
| Retention | 5% held until 6-12 months after completion | "I don't do retention", or an offer to discount the quote if you skip it |
| Variations | Priced and signed off in writing before work starts | Verbal agreements, surprise charges on the next invoice |
| Contract | JCT Homeowner contract, FMB contract, or a clear bespoke contract | "We don't bother with contracts", handshake only |
Warning
The single biggest indicator of trouble is a deposit demand above 25%. A builder asking for 30 to 50% up front is either covering a hole on another job, scaling out of his depth, or planning to disappear. There is almost no legitimate reason a small extension builder needs more than 15-20% before the first BCO inspection.
The cash-only red flag deserves its own note. Avoiding VAT can save 20% on a small job, but it strips you of every consumer protection: no invoices, no receipts, no Section 75 credit card cover, no FMB or trade body recourse, no court paper trail for the small claims process. If the work goes wrong, you have no documentary case. The 20% saving is not worth the 100% risk.
How to Protect Yourself
Five mechanisms, in rough order of effectiveness.
1. Pay the Deposit on a Credit Card (works best for smaller contracts)
Section 75 of the Consumer Credit Act makes your card issuer jointly liable with the builder for breach of contract on any purchase where the cash price is between £100 and £30,000. The £30,000 cap is on the contract value, not on the credit card payment. If the contract qualifies, paying any amount of it on a credit card (even £1) brings the entire contract under Section 75 protection.
That makes Section 75 the strongest protection you can put in place for smaller jobs: garage conversions, single-room remodels, kitchen rip-outs, anything priced under £30,000. Pay any portion on a credit card and your bank is on the hook for the whole loss if the builder goes under.
For a typical single-storey extension at £40,000-£100,000, the contract sits above the Section 75 ceiling, and the protection does not apply to the build as a whole. The Financial Ombudsman has occasionally been generous in disputed cases, but you cannot plan around that. On larger builds, your real protections are the contract, the BCO-tied stage payments, retention, and (above £75,000) a stakeholder account. Treat Section 75 as a useful add-on for the deposit on small contracts, not a safety net for big ones.
If the contract value is on the borderline, ask the builder whether the work could be split into separate contracts (one for groundworks, one for structure, one for fit-out, each under £30,000). This sometimes works for staged builds with a clear break point. It is a question for a solicitor, not a trick to play on the builder.
2. Tie Every Stage Payment to a Building Control Inspection
The standard schedule above lines up Stage 2 with the foundation BCO sign-off, Stage 3 with the structure inspection, and Stage 4 with the watertight inspection. This is not coincidence. It uses the council's inspector as your independent verification that the stage is actually complete.
When you sign the contract, write into it: "Each stage payment is due within 7 days of the building control inspection signing off the work in scope for that stage." If a builder pushes back on this, ask why. The legitimate answer is "the BCO timing is unpredictable", which is fair, but the solution is to use a defined backstop ("or 21 days after the builder requests sign-off, whichever is earlier"), not to remove the linkage entirely.
3. Hold the Retention
A 5% retention released 6 to 12 months after completion gives you the only post-handover pressure point that consistently works. Builders fix snags that come with money attached. They forget about ones that don't.
If your builder offers a discount to skip retention, decline. The discount is almost always less than 5%, and you have just given up the only meaningful pressure point you have on quality.
4. Use a Recognised Contract
A JCT Homeowner contract or an FMB Domestic Building Contract is a few hundred pounds and gives you a written framework with insurance, dispute resolution, defects liability, and standard payment terms baked in. Many small builders will not have used one before. Insist anyway. The act of going through the document together flushes out misunderstandings before they become invoices.
A builder who refuses to sign any written contract is telling you something important.
5. Consider Stakeholder Payments for Bigger Builds
For projects above about £75,000, a stakeholder account (sometimes called construction escrow) holds your stage payments with a third party. The builder cannot draw down without you releasing the funds, and you cannot refuse without grounds. Solicitors and specialist services like myBuilder Pay offer this for higher-value builds.
For most extension contracts under £75,000, this is overkill. The combination of credit card deposit, BCO-tied stage payments, and 5% retention covers most of the same ground at no extra cost.
Tip
Set up the credit card payment, the contract, and the retention clause before the builder is on site. Once excavation has started, your bargaining power is gone. The builder knows you cannot easily switch contractors mid-build, and the protections you negotiate after work begins are always weaker than the ones you negotiate before.
What to Do If Your Builder Goes Bust Mid-Job
Construction insolvency in the UK is at the highest level of any sector. Nearly 4,000 construction firms went under in the year to August 2025, accounting for 17% of all UK business collapses. Most were small contractors. The cause is rarely bad workmanship; it is cashflow gaps that finally close around the wrong project.
If your builder ceases trading partway through your build, here is the order of operations.
1. Stop all payments. Cancel any standing orders or pending transfers. If you have an outstanding stage payment due, do not pay it, even if the work for that stage is done. The money will go to creditors, not back to you.
2. Section 75 or chargeback claim on the deposit. If the deposit was paid on a credit card and the contract value is under £30,000, file a Section 75 claim with the card issuer immediately. You do not need to wait for the formal insolvency process. The bank will investigate; the typical resolution time is 6-8 weeks. If the contract value is above £30,000, Section 75 may not apply directly, but a chargeback claim is still worth filing for the deposit (debit cards have a 120-day chargeback window; credit card chargeback rules vary by scheme). Talk to your bank about both routes on the same call.
3. Document everything. Photograph the site, list materials delivered but not used, note which trades are part-paid, gather every invoice and contract document. You will need this for any insurance claim, Section 75 claim, or insolvency creditor submission.
4. Check insurance. If your builder was FMB-registered, the FMB warranty scheme may cover up to £50,000 of completion costs. JCT contracts can include a similar guarantee. Some homeowner buildings insurance policies include partial cover for builder insolvency. Check all three.
5. Get a fresh quote on the remaining work. Two or three new builders should price the completion. Expect a premium of 15 to 30% over the original contract because the new builder inherits unknown risks (substandard hidden work, materials they cannot verify, building control re-inspection of completed stages). Document this premium for any insurance or Section 75 claim.
6. Submit as a creditor. If the original builder enters formal insolvency (administration or liquidation), you can submit a creditor claim for unrecovered deposits and prepayments. Realistically, secured creditors (HMRC, banks, equipment finance) get paid first. Unsecured creditors typically recover pennies in the pound, sometimes nothing.
The retention pot in your account is now part of your unrecovered loss. There is no one to release it to. Keep it; use it toward the completion premium.
A real worst-case scenario is a homeowner losing the deposit, paying a 25% completion premium on the remaining work, and absorbing several months of project delay while a new builder is found. On a £60,000 build with a £6,000 deposit, that is roughly £6,000 + £13,500 = £30,000 of total exposure. A successful chargeback or Section 75 claim recovers the deposit if eligible. The retention you held back covers part of the completion premium. The remaining loss is the cost of the disruption.
This is why the protections matter. A homeowner who paid the deposit on a credit card, tied stage payments to BCO inspections, used a JCT contract with insurance backing, and held 5% retention recovers most of their position. A homeowner who paid 30% up front in cash, with no contract, recovers nothing.
Behind the Curtain: Why the Schedule Exists
If you understand why builders structure payments this way, the contract conversation gets easier.
A small extension builder spends money daily. Labour is weekly. Materials arrive before work starts. Subcontractors want settling within 7 to 14 days. He is reaching the BCO foundation milestone with several thousand pounds of his own money already out the door.
The stage payment lands and he is back in positive territory for a week or two, until the next stage of spend ramps up. The walls go up: blockwork, scaffolding, bricklayer day rates, a labourer humping materials. The next milestone payment does not arrive until the roof is on. That is six to ten weeks of spending against a milestone that has not been reached.
This is why your builder is on multiple sites. When your job is in a waiting period between milestones, his other client's deposit is funding payroll. When their job hits a snag, your stage payment is keeping the lights on. The model is not chaos. It is the only way most small extension firms can stay solvent on the thin margins the sector pays.
It is also why prompt payment matters. A builder who knows that hitting the watertight milestone means money in his account within three days has a financial reason to push hard for that inspection date. One who expects to wait three weeks has less. Fast payment, on milestones you have verified, creates fast work.
This does not mean delays are acceptable when they are excessive or unexplained. It does mean that a builder who is upfront about his payment timing and his other commitments is more likely to be a working professional than a flake. Evasiveness on the schedule question is a red flag in itself.
A Note on Scale
A builder turning over £85,000 a year is typically a sole trader or one-person operation. Three bad months and the business is done. A builder turning over £400,000 has more buffer: more projects, more revenue to absorb a problem job, more credit lines across merchants. But the underlying mechanism is the same. Multiple jobs running together, each plugging the cashflow gap from another.
When you select a builder, ask the turnover question. Not as an interrogation, but as a resilience signal. A very small operation with one or two jobs a year has almost no buffer; any delay or late payment elsewhere can directly affect your build. That is not a reason to avoid small builders, many of the best are small. It is a reason to ask whether your job represents their entire workload, and whether they have capacity to start when they say they will.
External resource
FMB Find a Builder
Find Federation of Master Builders members. Members are credit-checked, carry adequate insurance, and agree to independent inspection.
fmb.org.uk
External resource
Citizens Advice: Building Work and Contracts
Official guidance on contracts, deposits, and what to do if building work goes wrong.
citizensadvice.org.uk
External resource
JCT Homeowner Contract
Standard JCT contract for domestic building work. Covers payments, defects liability, dispute resolution.
jctltd.co.uk