Customers caught in building insurance limbo after the collapse of Porter Davis have been thrown a $15 million lifeline by the Victorian government.

About 560 families were in jeopardy of losing their home deposits while waiting for building to start, when insurance had not been filed for them by the company before it went into liquidation last month.

Premier Daniel Andrews said he believed the scheme would cost about $15 million, averaging about $25,000 per customer.

“They didn’t do anything wrong. They have acted in good faith,” Mr Andrews said on Thursday.

“Porter Davis for some inexplicable reason have not forwarded on the insurance premiums that have been paid.”

Refunds are capped at five per cent of the value of the contract as that is what customers with insurance will also receive.

About 1700 homes across Victoria and Queensland were left in limbo by the collapse of the company.

Porter Davis customer Richard Williams told AAP he was relieved by the announcement.

“The messages in the group’s WhatsApp chats show tears of joy and relief, with people hugging their families,” Mr Williams said.

“We will be able to sleep tonight for the first time in three weeks.”

Fellow customer Eric Poon said the news restored confidence in the industry but there was still a long way to go until his family could finally build and move into their dream house.

“We are now facing higher costs, as renegotiating a new construction contract comes with a 20 per cent increase in comparison to the original Porter Davis agreement. The time wasted in this process is an additional burden,” he said.

The state government is working with liquidator Grant Thornton to understand exactly how many customers without insurance had already started building.

Mr Andrews signalled those customers would also be eligible for support and it would make sense if incomplete projects could be sold on to other builders.

“We just need a little bit more time to firm that up, to have a better sense (of how many are impacted),” he said.

The Victorian Building Authority is investigating whether the company breached laws.

Opposition Leader John Pesutto said Mr Andrews should not be “governing constantly by bailout”, with the Victorian budget suffering under the weight of record debt.

“This is giving affected homebuyers only what they should have had all along. Daniel Andrews is not a hero for cleaning up his own mess,” he said.

Mr Pesutto called into question the government’s ability to deal with systemic challenges in residential construction and said the coalition will seek crossbench support to establish an upper house inquiry with a non-government chair.

Master Builders Victoria interim chief executive Michaela Lihou said she was shocked families were left without insurance, but stressed the situation did not represent the whole industry.

“For them not to follow such a basic procedure and leave hundreds of trusting families in the lurch is absolutely reprehensible,” Ms Lihou said.

It was revealed on Wednesday the company collapsed owing close to $33 million to the Commonwealth Bank, on top of other debts.

The liquidator is still trying to determine Porter Davis’s overall financial position.

Earlier in the week Nostra Property Group entered into a sales agreement to buy the company’s multiple dwelling business and will complete up to 375 townhouses.

The Queensland Building and Construction Commission is dealing with claims from the Porter Davis fallout, with about 200 customers affected in the state.

– AAP