Top Strategies to Finance Off-the-Plan Property

What Makes Off-the-Plan Lending Different

Off-the-plan purchases require lenders to approve your loan based on floor plans and contracts rather than a completed property. Most lenders will provide pre-approval based on these documents, but they will revalue the property and reassess your financial position once construction is complete and before final settlement. This means your loan approval has two checkpoints, not one, and changes to your income, employment, or the property market between contract and settlement can affect whether your finance proceeds.

Consider a buyer who signs a contract for a townhouse in a new Bunyip development with settlement scheduled 18 months later. At the time of signing, their income supports the loan and the lender values the property based on the developer's sales data and comparable transactions. By settlement, if that buyer has changed jobs, reduced their hours, or taken on additional debt, the lender will reassess serviceability. If the local apartment market has softened and the bank's valuation comes in below the purchase price, they may approve a lower loan amount or require a larger deposit. Both scenarios require planning well ahead of settlement.

Deposit Requirements and Genuine Savings

Most lenders require a deposit of at least 10% for off-the-plan purchases, with the balance paid at settlement. If you are borrowing more than 80% of the property value, Lenders Mortgage Insurance will apply. Some lenders classify off-the-plan purchases as higher risk and may require a 15% or 20% deposit depending on the property type, location, and the developer's track record.

Genuine savings policies also apply. Lenders generally want to see that at least 5% of the purchase price has been saved over a minimum period, typically three to six months, in your own accounts. Gifted funds from family may be accepted toward the balance of the deposit, but lenders will require a statutory declaration confirming the funds are a gift and not a loan. If you are using the Australian Government 5% Deposit Scheme, you can purchase with as little as 5% down, but the property must meet the scheme's price caps and eligibility criteria. For regional areas in Victoria including Bunyip, the cap is $650,000 for properties outside capital cities and regional centres.

How Sunset Clauses Affect Your Finance Timeline

A sunset clause sets a final date by which the developer must complete the property and settle, or either party can walk away from the contract. These clauses are common in off-the-plan contracts and typically range from 18 to 36 months from the contract date. If the developer extends the sunset date or delays practical completion, your home loan pre-approval may expire before settlement.

Pre-approvals are generally valid for three to six months. If your settlement is delayed beyond that window, you will need to reapply for finance, and the lender will reassess your application under current credit policy, interest rates, and your updated financial position. In our experience, buyers who sign contracts with tight sunset clauses or who don't monitor construction progress can find themselves needing to reapply for finance multiple times, each time incurring valuation fees and documentation requests. Keep contact with your broker and your lender in the months leading up to the expected settlement date, and confirm your approval is still current at least 60 days before the scheduled date.

Fixed, Variable, or Split Rate for Off-the-Plan Loans

You will select your loan structure at the time of final approval, not at contract signing. This gives you the advantage of choosing your rate type closer to settlement when you have a clearer view of market conditions. A variable rate gives you flexibility to make extra repayments and access features like an offset account, which can reduce the interest you pay over time. A fixed rate locks in your repayment amount for a set period, usually one to five years, but limits your ability to make extra repayments and may carry break costs if you sell or refinance early.

A split loan combines both structures. You might fix 50% or 60% of your loan to protect against rate rises and keep the remainder on a variable rate with an offset account attached. This approach works well for buyers who want some certainty but also want the option to pay down their loan faster as their income grows. Speak with your broker about your repayment goals and risk tolerance before you lock in a structure at settlement.

What Happens If the Valuation Comes in Low

When the property reaches practical completion, the lender will send a valuer to assess the finished property. If the valuation comes in below your purchase price, the lender will calculate your loan based on the lower figure. This creates a shortfall that you will need to cover with additional savings or by accepting a higher LVR and paying LMI.

As an example, a buyer contracts to purchase an apartment for $580,000 with a 10% deposit of $58,000, expecting to borrow $522,000. At settlement, the lender's valuation comes in at $550,000. The lender will now approve a maximum loan of 90% of $550,000, which is $495,000. The buyer needs to find an additional $27,000 to settle, or negotiate with the developer to reduce the purchase price in line with the valuation. Developers are rarely willing to reduce the price, so buyers should plan for this risk by holding a buffer in savings or arranging access to family assistance if needed.

Structuring Your Loan for an Investment Property

If you are purchasing the off-the-plan property as an investment rather than to live in, lenders will assess your application differently. Rental income will be factored into your serviceability, but most lenders apply a shading of 20% to account for vacancy and maintenance costs. This means if the property is expected to generate $450 per week in rent, the lender will assess it at $360 per week.

Interest-only repayments are available on investment loans and can improve cash flow in the early years, but you will need to demonstrate strong serviceability and may be required to hold a lower LVR to access this feature. Lenders also assess investment properties more conservatively, particularly high-density apartment developments. Some lenders apply postcode restrictions or limit their exposure to certain developments, so it is worth confirming your preferred lender will accept the property type before you sign the contract.

Managing Your Finances Between Contract and Settlement

The period between signing your contract and settling on the property is not the time to take on new debt, change jobs, or reduce your income. Lenders will request updated payslips, bank statements, and employment verification in the weeks leading up to settlement. If your financial position has deteriorated, they may reduce your approved loan amount or withdraw the offer entirely.

We regularly see buyers who sign a contract and then finance a new car, take an overseas holiday on credit, or move to casual employment without realising the impact on their loan approval. If you need to make any significant financial changes between contract and settlement, speak with your mortgage broker in Bunyip first. Even small changes like increasing your credit card limit or applying for buy-now-pay-later accounts can affect your borrowing capacity and jeopardise your settlement.

Off-the-Plan Incentives and How They Affect Valuations

Developers often offer incentives to buyers, including stamp duty contributions, appliance packages, or furniture credits. While these incentives reduce your upfront costs, they do not increase the property's market value in the eyes of the lender's valuer. The valuer assesses the property based on comparable sales of similar completed properties in the area, not on what the developer is offering as part of the sales package.

If the developer is offering $15,000 in incentives on a $600,000 apartment, the lender will still base their valuation and loan amount on the market value of the apartment itself, not the total value of the package. This distinction matters if you are borrowing at a high LVR, because the incentives do not reduce the amount you need to borrow or increase the amount the lender will lend.

Settlement Costs You Need to Cover

In addition to your deposit, you will need to cover settlement costs including conveyancing fees, transfer duty (stamp duty), lender establishment fees, valuation fees, and title registration. These costs typically range from $15,000 to $30,000 depending on the purchase price and whether you qualify for any duty concessions.

Victoria offers a range of first home buyer concessions that may reduce or eliminate your stamp duty liability. A full exemption applies on properties valued up to $600,000, with a sliding scale concession on properties valued from $600,001 to $750,000. If you are purchasing a new home, the First Home Owner Grant of $10,000 is available for properties valued up to $750,000. These concessions apply whether you are purchasing an established home or a new off-the-plan property, provided you meet the residency and eligibility requirements. Factor these costs into your budget from the outset and confirm with your conveyancer what the final settlement statement will include.

Call one of our team or book an appointment at a time that works for you to discuss your off-the-plan purchase and confirm your loan structure is ready for settlement.

Frequently Asked Questions