Everything You Need to Know About Off-the-Plan Loans

Getting Finance Right Before You Sign

Off-the-plan purchases require formal approval at settlement, not at contract. Lenders will usually only provide formal approval once the property is built and valued. You sign the contract and pay a deposit now, but the lender reassesses your income, employment, credit, and the finished property value at completion, which can be 12 to 24 months away.

Consider a self-employed professional buying a two-bedroom apartment in a new Woollahra precinct development for $1.6 million. At contract, they provide proof of income and secure an indicative approval, but the lender will not commit funds until completion. If business income declines or the buyer takes on additional debt in the interim, the approval at settlement can be affected or withdrawn.

We regularly see buyers assume an early pre-approval protects them. It does not. The property must be valued at completion, and your financial position must still meet the lender's serviceability criteria at that date. Your ability to service the loan can be impacted by a change in your financial position, market falls or interest rates rises between the time you agree to buy and actually purchase the property. If anything material has changed, including employment type, income level, or existing debt, the lender will reassess.

Timing Your Home Loan Application

Waiting until closer to settlement gives you a more reliable approval. Most lenders issue home loan pre-approval for up to 90 days. Lenders generally only provide a finance approval for up to 90 days. This works well in the everyday purchase of existing property, however off the plan properties generally take a lot longer, considering the construction timeline. If settlement is more than three months away, the formal approval will expire before you settle.

The approach that works is securing a finance assessment at contract to confirm your borrowing capacity, maintaining stable employment and income throughout construction, and lodging a formal application within 90 days of the forecast completion date. Applying too early means your approval expires. Applying too late means you may not have time to address unexpected issues before settlement.

Valuation Shortfalls at Settlement

Due to the length of time involved, markets can fluctuate impacting your property value and subsequent loan approval. It's worth having a financial buffer in the event of a property value decline. If the property values at less than the purchase price, the lender reduces the approved loan amount. The shortfall must be funded from your own cash or savings, or the purchase cannot proceed.

As an example, a buyer purchasing an off-the-plan unit at Woollahra's current median for apartments signs a contract for $1.65 million with a 10% deposit of $165,000. At completion 18 months later, the lender's valuer assesses the finished property at $1.55 million. With a 10% deposit already paid, the buyer originally needed to borrow $1.485 million. At the lower valuation, the lender will only advance $1.395 million at 90% LVR. The buyer must now find an additional $90,000 in cash to settle, or risk defaulting on the contract and forfeiting the deposit.

We regularly see valuation shortfalls in slower markets or where too many units settle at the same time in the same precinct. The lender does not care what you agreed to pay. They lend against what the property is worth at completion.

What Changes to Avoid Before Settlement

Maintaining stable employment and financial commitments between contract and settlement is not optional. Don't change jobs or drop from full-time to part-time, contract or casual work. Don't apply for a pre-approval early and don't apply for other credit including car loans, personal loans or credit cards. Lenders reassess your entire position at settlement, and even small changes can reduce borrowing capacity or result in a declined application.

For self-employed borrowers, this means continuing to lodge tax returns on time and maintaining income at or above the level disclosed in the original assessment. For working professionals, it means avoiding a change from full-time salaried employment to contract or casual work, which many lenders treat as higher risk. Taking on new debt such as a car loan or increasing credit card limits reduces your serviceability and may push you outside the lender's approved parameters.

You cannot assume the lender will approve you at settlement simply because you were approved earlier. The entire application is reassessed. If your circumstances have changed, the approval can be reduced or withdrawn.

Using Government Schemes with Off-the-Plan Purchases

Eligible first home buyers can combine off-the-plan purchases with the Australian Government 5% Deposit Scheme, provided the purchase price and lender valuation both remain within the applicable cap. For NSW, the cap is $1.5 million in capital cities and regional centres. The scheme allows a 5% deposit without paying lenders mortgage insurance, with Housing Australia guaranteeing the difference up to 20%.

Help to Buy is also available for off-the-plan purchases where the buyer meets the income limits. The Australian Government contributes up to 40% of the purchase price for a new home in exchange for an equivalent equity stake. Both schemes require formal approval at settlement, and the property must be valued at or below the applicable price cap at that time, not just at contract.

NSW first home buyers purchasing a new home off-the-plan are eligible for full transfer duty exemption on properties valued up to $800,000, or a concession on properties valued between $800,001 and $1 million. The duty exemption applies at settlement based on the dutiable value at that date.

Split Loan Structures for Off-the-Plan Settlements

Splitting your loan between a fixed rate and variable rate portion provides flexibility if rates change between contract and settlement. A split rate structure allows you to fix part of the loan for rate certainty, while keeping the remainder variable to access offset and make additional repayments. For buyers concerned about rate movements during a long construction period, fixing part of the loan at settlement can limit exposure to further increases.

An offset account linked to the variable portion reduces interest from day one. If you are still renting while the property is under construction, using an offset to park cash and reduce the interest on your loan once it settles is a direct saving. For investors, structuring the loan with interest only repayments for the first few years can improve cash flow, particularly where the property will be tenanted from completion.

Loan structure is locked in at settlement, not at contract. You can adjust your approach based on rates and your financial position closer to completion, provided the lender still approves your application at that time.

Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions