Do you know how off-the-plan loans actually work?

Off-the-plan purchases require a different approach to financing than buying an established property.

The time gap between contract and settlement means your home loan pre-approval needs to account for construction delays, policy changes, and valuation shifts that can occur over 12 to 24 months. The lending landscape at settlement may look completely different to the one you entered at contract signing.

Two approvals, not one

You need pre-approval when you sign the contract, then full approval closer to settlement. Pre-approval confirms your borrowing capacity and locks in your intent with the lender, but it does not guarantee the loan will proceed at settlement. The lender reassesses your financial position, the property value, and their own credit policy when construction completes. If your income has dropped, your debts have increased, or the lender has tightened their servicing calculations, the loan amount offered at settlement may be lower than the original pre-approval. Some lenders also impose a maximum contract period they will support, typically 24 months from contract to practical completion.

Consider a buyer who secured pre-approval for a two-bedroom apartment in Fortitude Valley at a purchase price within the lender's appetite at the time. Between contract and settlement, the lender introduced a servicing buffer increase and reduced their maximum loan-to-value ratio for apartments in high-density postcodes. At settlement, the buyer was approved for a lower loan amount and needed to provide an additional $30,000 in cash to proceed. The contract was binding, and the deposit was at risk if the buyer could not settle.

Valuation risk at settlement

The property is valued at practical completion, not at contract. If the valuer assesses the completed apartment below the contract price, the lender will only advance funds based on the lower valuation. You remain obligated to pay the full contract price, which means funding the shortfall from your own resources. This is a common issue in precincts where supply has increased significantly between contract and completion, or where the sales price reflected incentives or developer discounts that do not translate to market value once the building is finished.

In our experience, buyers in high-density areas such as Fortitude Valley and Brisbane's inner-city fringe face higher valuation risk because apartment supply can shift quickly. A building that was one of three under construction at contract may be one of ten at completion, and valuers adjust their assessments based on comparable sales in the completed market.

Deposit structure and timing

Most off-the-plan contracts require a 10% deposit, paid in stages. A portion is due at contract, with the remainder paid at set intervals or construction milestones. Some developers offer deposit-reduction incentives, such as 5% deposits, but this does not change the lender's assessment of your equity position. Lenders calculate loan-to-value ratio based on the lower of the purchase price or the settlement valuation, and a smaller deposit increases your LVR and the likelihood of needing Lenders Mortgage Insurance.

You cannot typically use the Australian Government 5% Deposit Scheme for off-the-plan purchases that settle beyond 24 months from contract, as many participating lenders impose maximum contract-to-settlement periods. Confirm the lender's off-the-plan policy before relying on the scheme for a project with a long construction timeline.

Interest rate and product selection

Fixed rates are uncommon for off-the-plan loans because the rate would need to be locked at settlement, not at contract. Some lenders allow you to lock a fixed rate closer to settlement, typically within 90 days of practical completion, but you are otherwise committed to a variable rate at the time the loan is drawn. If rate movements between contract and settlement are significant, your repayment capacity may be tested at settlement under the lender's current serviceability assessment, which applies the actual rate plus a buffer.

Split loan structures, where part of the loan is fixed and part is variable, are only available once the loan is active. You make that decision at settlement, not at contract. A linked offset account also becomes available at settlement, not during construction, so any savings you accumulate during the construction period should remain in a high-interest savings account until the loan is drawn down.

Sunset clauses and loan expiry

A sunset clause allows either party to terminate the contract if practical completion does not occur by a specified date. If the developer exercises the sunset clause, your deposit is refunded, but your pre-approval will have expired and your financial position may have changed. If you have relied on a particular credit policy, interest rate environment, or government scheme that is no longer available, you may not be able to secure equivalent financing if you re-enter the market.

Your home loan pre-approval is generally valid for three to six months, and lenders may extend it on request if your circumstances remain stable. For off-the-plan purchases, you should maintain contact with your broker or lender during construction to ensure your approval is updated as the settlement date approaches. Do not assume the original pre-approval remains valid without proactive reconfirmation.

Practical completion and drawdown

The loan is drawn down at settlement, which occurs after the developer issues a notice of practical completion and you complete a pre-settlement inspection. The lender orders a valuation based on the completed property, not the plans or the contract price. If defects are identified or if the completion standard differs from the contract specification, this can delay settlement and, in some cases, affect the valuation.

Settlement costs, including legal fees, bank fees, and registration charges, are paid from your own funds at settlement and are not typically included in the loan amount. You also need to account for any adjustments, such as council rates or strata levies, that are apportioned between you and the developer.

When to involve a broker

You should speak to a broker before signing the off-the-plan contract, not after. The contract is binding once signed, and your ability to secure finance at settlement is your responsibility under the finance clause. A borrowing capacity assessment before contract gives you a realistic view of what you can afford at settlement under a range of scenarios, including rate rises, policy changes, and valuation shortfalls. A broker can also identify lenders with stable off-the-plan policies and reasonable contract-to-settlement timeframes, which reduces the risk of policy changes affecting your approval.

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

Frequently Asked Questions