A neighbour who helped a family escape from their home south-west of Newcastle moments before a stolen bulldozer tore through the place will be recommended for a bravery award.

The Teralba home was destroyed yesterday when a man allegedly stole a bulldozer from a nearby coal preparation plant and used it to flatten four cars before he ploughed through the property.

Jamie Francis Sager, 48, was arrested at the scene and charged with breaching an apprehended violence order and destroying with intent to endanger life.

He also allegedly chased a man who had been sleeping in a shed before destroying the weatherboard cottage.

Sager appeared at Newcastle Local Court today and sat expressionless.

His lawyer, Matthew Unwin, said his client was previously diagnosed with mental health conditions and has requested a psychiatric assessment.

The magistrate endorsed the request.

Sager did not apply for bail and it was formally refused.

He is expected to face court again in August.

The three people inside the home managed to escape when their neighbour warned them to run out of the house. ( ABC News: David Marchese )

Inspector David Matthews said those first on the scene should be commended for bravery.

"[It was] great work by the next door neighbour and absolutely outstanding work by the two initial attending police officers," he said.

"I will be referring the neighbour and the two officers to the New South Wales police force recommending that they receive some form of commendation."

Deborah Kerr said she took refuge in a neighbour's house as her own home was destroyed. ( ABC News )

The three people inside the home managed to escape when their neighbour warned them to run out of the house.

"My neighbour next door came running over and he's screaming at the gate to 'get out quick, he's about to bulldoze the house down'," resident Deborah Kerr said.

Ms Kerr said she ran from the front door of the house screaming as the bulldozer drove into the building.

"We felt the house lifting as we got to the front steps. We were just on the verandah, coming out the front verandah, when the house started to lift," she said.

Inspector Matthews said the family was lucky to be alive.

"As he was driving the bulldozer through the back of the premises, the three female occupants, with the assistance of a neighbour, have fled out the front door and to a neighbour's house, where they have sought refuge," he said.

Inspector Matthews said the ordeal ended when a police officer climbed onto the bulldozer after it became bogged, and used an emergency stop button to turn it off before he and another officer arrested the driver.

"He couldn't get into the bulldozer because the doors were secured, so he smashed the window of the bulldozer and delivered an entire can of OC spray [pepper spray] into the cabin, which incapacitated the driver," Inspector Matthews said.