Off the plan units

What is an off the plan purchase

Many investors choose to put down a deposit on a unit or townhouse that is to be built, before a single brick has even been laid. This is known as an off the plan purchase because all the investor has to go off is the building plans offered by the developer.

This is a popular choice because the investor will often get a significant discount below the market value and the property may appreciate in value significantly before settlement occurs in a few months or years time.

How much can you borrow?

First home buyer: 95% of the property value (restrictions apply).

Investor: 95% of the property value.

Low doc: 80% of the property value.

Discounts: Competitive professional package and basic loan discounts are available.

Note: Many lenders do not give the final approval for off the plan purchases until they are complete or within 6 to 12 months of completion. In many cases they will ask for a certificate of occupancy prior to approval or settlement.

Valuation or purchase price?

With a normal purchase banks tend to use the lesser of the purchase price or valuation when determining how much you can borrow. However with an off the plan purchase it is not uncommon for more than 12 months or even several years to have passed between when the price was agreed and when the settlement occurs.

Because of this some banks will use the market value rather than the purchase price when assessing your Loan to Value Ratio (LVR), LMI premium (if applicable) and final loan amount.

Can I get multiple valuations?

Some people choose to get valuations from multiple lenders, and then apply with the lender that had the highest valuation. This can allow them to borrow more money or reduce the LMI premium they would pay.

In theory this works just fine, however in practise most lenders require you to apply for a loan before they will do a valuation. If you apply with multiple lenders then you are almost certain to fail the credit score of the lenders due to having too many enquiries on your file.

However some lenders can allow you to order a valuation prior to submitting a loan application. We can help you to order valuations prior to applying for a loan, so that you can maximise the amount that you can borrow.

Why are the banks so conservative?

Banks tend to be more conservative with off the plan sales because in some cases properties are sold for more than they are worth and the bank valuers have failed to notice the discrepancy.

Although you may make a small fortune from your investment, the bank is only concerned about their risk. Because of this many banks limit their mortgage loans to 80% of the property value. By using a mortgage broker you can find a lender that is willing to take a common sense approach to your off the plan purchase.

When can I apply for my loan?

Banks can often issue a pre-approval at the time you sign the contract, however by the time settlement comes around they will want to reassess your loan application in full. If your situation has changed or if lending criteria has changed, then you risk being declined and possibly losing your deposit. For this reason we recommend that you only buy a property off the plan if you are in a very secure financial position and fully understand the risk that you are taking.

The time to apply for formal approval is when the building is complete and settlement is less than six weeks away. At that time you should contact us and we can help you to decide which lender it is best to apply with.