Note: There have been significant changes to off the plan loan policy so please read below for more information on when to apply for finance.

How much can you borrow?

Many investors choose to put down a deposit on a unit, duplex or townhouse before a single brick has even been laid.

These ‘off the plan’ purchases are a popular choice because the investor will often get a significant discount below the market value and the property may appreciate in value before settlement occurs.

  • First home buyer: 95% of the property value (restrictions apply) or up to 105% with a guarantor.
  • Investor: 95% of the property value.
  • 100% loans: Available with some of our lenders if you have a guarantor.
  • Low doc: 80% of the property value.
  • Discounts: Competitive professional package and basic loan discounts are available.

Please call us on 1300 889 743 or complete our free assessment form and one of our mortgage brokers will help you to get your mortgage approved.

Get to know the risks of buying off the plan below.

When is the best time to apply for my home loan?

  • Less than 3 months until settlement: When the building is close to completion, you can apply for formal approval with most lenders. Some want the construction complete and a certificate of occupancy provided prior to settlement.
  • 3-18 months until settlement: Unfortunately, this option is no longer available so your pre-approval will expire after 3 months.
  • More than 18 months until settlement: You can’t apply for your mortgage if settlement is over 18 months away.

Most lenders can issue an indicative approval at the time you sign the contract but it’s useless unless your situation has remained relatively unchanged by the time settlement comes around.

This could be up to two years away!

If it has changed, you risk being declined, defaulting on the building contract and possibly losing your deposit.

We can provide you an informal assessment so you have a good idea if you will qualify for an off the plan loan.

Will banks use the 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, it isn’t 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), lenders mortgage insurance (LMI) premium (if applicable) and final loan amount.

Ordering multiple valuations

Some people choose to get valuations from multiple lenders and then apply with the lender that has the highest valuation.

This can allow them to borrow more money or reduce the LMI premium they’d pay.

In theory, this works just fine, but in practice, 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 credit scoring for too many enquiries on your file.

However, some lenders can allow you to order a valuation prior to submitting a loan application.

Call us on 1300 889 743 or complete our free assessment form.

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’re 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.

As a result, many banks tend to 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.

Am I paying too much for my property?

We know some people who’ve been sold overpriced off the plan properties by sophisticated marketing companies.

Although we can’t give you investment advice, we strongly recommend that you do your own research.

Consider location, the reputation of the developer and the value of the property before you sign the contract of sale.

In particular, you should look at comparable properties that have been sold in the last six months that aren’t in the same development that you’re buying in.

You can refer to our how to value a property page for more information.

Who can buy off the plan?

In our experience, the following types of borrowers are better suited to manage the risks associated with off the plan properties:

Who shouldn’t buy off the plan?

Don’t do this 12 months out from settlement!

To give yourself the best chance of getting approved, your situation should remain relatively unchanged between paying your deposit to applying for pre-approval.

It’s even more critical when settlement is 12 months away so here are some golden rules to follow:

  • Don’t change jobs or drop from full-time to part-time, contract or casual work.
  • Don’t have children (if possible).
  • Don’t apply for a pre-approval early (wait until your 3 months away from settlement) and don’t apply for other credit including car loans, personal loans or credit cards.
  • Continue to save a deposit with regular deposits into a bank account.

Have you considered the benefits of buying existing?

The biggest benefits are avoiding the risk of the market going and having to provide a large deposit.

That’s because the valuation on an existing property is done at the time of buying the property, not in several months time after you’ve paid a deposit.

It can be difficult to find the right property at the right price in a seller’s market but that simply means spending a bit more time searching.

Best of all, it’s common to get a much better property at a more competitive price than buying an off the plan property.

Note: This shouldn’t be considered as investment advice.

Predicting property prices is fraught with speculation and heresay.

You should take into account your own financial situation and seek other professional advice before making an investment decision.

The real risks of buying off the plan

The risk of oversupply

Because there’s such a delay between starting construction and actually completing your property, there’s the risk that the market slows down.

As a result, the valuation may come in under value by the time settlement rolls around.

This means you’ll need to come up with a bigger deposit because you’ve already agreed to the purchase price in the Contract of Sale.

We’ve seen this happen time and time again when markets start reaching their peak and development projects going on just about everywhere.

Over the past few years, in Sydney and Melbourne in particular, hundreds of thousands of units have been given Development Approval (DA) by councils.

Many of these units may not even see hammer and nail!

The market could change

This could work for you or against you.

If demand outstrips supply, you’ll get a higher valuation.

This will reduce your LVR, give you a better chance at formal approval and put you in position to leverage equity to invest in the near future.

In the case of oversupply or the changing desires of Australians, values on units may decrease.

If this happens between when you sign the building contract and pay your deposit and settlement, you’ll need to come up with a larger deposit to cover the shortfall.

Foreign investors can suffer from policy changes

In recent years, the Australian Government has been pushed politically to prohibit foreign investment in real estate.

Recently, foreign buyers who signed an off the plan contract 12-18 months ago can no longer qualify for a home loan at the time of settlement.

In addition, June 2017 saw the 12-month deferral of stamp duty payments for off the plan purchases in New South Wales (NSW) scrapped for foreigner investors.

That’s just how quickly lending policies can change!

First home buyers are unprepared to handle the risks

Many first home buyers buy off the plan because it seems normal but few of them have the financial resources if things go wrong.

The reason for this is partly how these developments are advertised to would-be borrowers.

On top of that, more first home buyers are becoming accustomed to the idea of smaller living.

The fact is that it’s a speculative investment not a normal bricks and mortar purchase.

The developer can make changes to the design

It’s true! Developers reserve the right to make variations to the design.

Sometimes the changes are minor and undertaken for safety reasons or unforeseen events but the key is that these changes should not “materially prejudice” you as the buyer.

It’s essential that you seek legal advice from a conveyancer to ensure that the contract allows you to withdraw from the sale and claim back your deposit should the changes be drastic, such as losing a bedroom or a storage area, changes to fixtures or fittings, or a significantly smaller floor area.

It’s not unheard of for a 50m2 unit to turn into a 35m2 studio apartment!

In most cases, off the plan developments come with a “tolerance percentage” for variations, such as 5 to 10 per cent.

Negotiate with the developer, get legal advice as to what the developer can modify, and keep the tolerance percentage as low as possible.

The developer is dodgy

It is highly unusual for off the plan developments to be sub-par in Australia because of our highly-regulated building industry. However, it can happen.

You cannot always protect yourself but you can reduce your risk by undertaking basic due diligence on the developer before paying your deposit:

  • A Google search can reveal a lot about the reputation of the developer/builder and real estate agent.
  • Find a list of properties that the developer has constructed and liaise with a real estate agent to inspect their quality.
  • Check with the local council to determine that the developer has in fact received DA approval.

Financial changes that are outside of your control

It could take up to 2 years for your off the plan property to be complete and in that time it’s expected that your financial situation to remain unchanged.

Even if you didn’t plan to, sometimes things are out of your control such as getting sick, injured or losing your job to redundancy.

Sometimes pregnancy can take you by surprise – we’re only human!

The strict financial requirements that are placed on borrowers for up to 24 months just isn’t feasable for most people which is why many find they’re unable to quality for formal approval.

Lending policies change regularly in this space

So you’re not a foreigner, Aussie expat or a first home buyer and your situation hasn’t changed: 18-24 months is still a long time for lending policies.

Bank appetite for off the plan units changes depending on supply and demand in the market.

In addition, what banks accepted just 12 months ago may not be acceptable to them by the time you come to apply for formal approval at settement.

For example, you may gotten pre-approval but now:

  • The bank will not accept that default on your credit file.
  • You need to provide a bigger deposit.
  • The bank will not accept the deposit you paid as genuine savings, particularly if you did not save it over a period of 3-12 months.
  • The lender will apply a higher interest rate.

Beware of property spruikers and seminars

When it comes to off the plan properties, it’s easy to get swept up in the slick sales techniques and marketing campaigns of property investment seminars.

Many people sign up to these events under the pretence that they will learn valuable tips and insights on buying real estate.

The reality is that they tend to be a huge sales pitch where property spruikers make grand promises about the fortune you stand to make.

These sales pitches start as brochures and pamphlets and then move on to emails and phone calls.

The high-pressure sales tactics reach their peak at investment seminars.

How to pick a dodgy investment seminar

In 2016, investigative journalist and real estate reporter Annabel Hennessy uncovered some of the more outrageous practices at so-called ‘free’ property investment seminars.

At one particular seminar, she was asked to put her hand through a block of wood, imagine that she was at her own funeral, give massages to attendees, chant and dance.

All of these activities are designed to amp you up and impair some of your rational thought.

Some property developers spend millions of dollars hiring marketing companies that understand the psychology of property investors and know how to get them to act.

Creating a sense of “fear of missing out” (FOMO) is one way.

If that doesn’t work, Hennessy found that some seminar hosts would tell personal stories of successful investors.

The problem was that some of these testimonials came from people who actually worked for, or were at least affiliated with, the developer or the education provider.

For all the stories of success, she found that the spruikers didn’t mention how much investors were in debt after buying into a development.

Sales contracts

The investigation found that some sales contracts came with a time limit on special deals.

For example, if you signed the building contract now or before a certain time, you could get 50% off or a $10,000 discount on their next education course.

All of this is designed to pressure you into signing!

It’s always important to get independent financial advice before making any significant financial decision.

What can you do to protect yourself?

Try to read between the lines whenever anything is advertised as ‘free’.

If it’s free, ask them where they are earning their money and what their motivations are.

More often than not, they’re not financial professionals and they’re not providing financial advice – they’re there to sell.

Disturbingly, there are groups of financial professionals out there that work together to recommend each other’s services, giving you the illusion that you’re making an informed choice.

These professionals include developers, accountants, lawyers and solicitors, financial planners and even mortgage brokers.

The good news is that the Australian Securities and Investments Commission (ASIC) is working tirelessly to remove these individuals from the industry.

What you can do in the meantime is be vigilent, don’t believe everything you’re told and ask the spruikers:

  • Why are you recommending this off the plan development?
  • Who do you work for?
  • Who are you affiliated with?
  • Do you receive any benefits if I sign up to this contract?

Good news on sunset clauses!

Since November 2015, there have been significant changes to sunset clauses in New South Wales that you need to be aware of!

A sunset clause allows the seller (vendor) or you as the buyer to effectively cancel the off the plan contract if the property hasn’t been completed by a specific date.

The sunset date is chosen by the vendor and is usually set for 12 months ahead of the likely project completion date.

Although it was designed to benefit both parties, there was increasing concern by the NSW Office of Fair Trading that projects were being deliberately delayed to turn a bigger profit.

When the contruction passed the sunset date, there were reports of contracts being rescinded and then sold shortly after for a higher price.

Luckily, the NSW Government responded with an amendment to the Conveyancing Act 1919 (NSW) and now requires the developer to give 28 days’ written notice of a recission of a contract.

If you don’t agree to the recission or don’t respond to the notice, the developer will have to obtain an order from the Supreme Court to proceed.

The Supreme Court will take into account several factors such as whether the developer or vendor acted in good faith, the reason for the delay and whether the property has in fact increased in value.

It basically makes it harder for an off the plan developer to back out of a contract and take advantage of buyers.

It’s a win for both homebuyers and investors.

Still want to buy off the plan?

Here are some golden tips:

  • Save as much as you can between signing the contract and settlement.
  • Before signing the contract, consider asking your parents if they can act as a guarantor if you’re unable to come up with a larger deposit at settlement.
  • Make sure you’re up-to-date with your financials for the purposes of verifying your income at settlement, particularly when it comes to your tax obligations as a self-employed applicant.
  • Pay your mobile phone bills, rent and other debt facilities on time to avoid getting black marks on your credit file.

Need an off the plan home loan?

Please call us on 1300 889 743 or fill in our free assessment form and one of our mortgage brokers will help you to choose a suitable lender and loan product.

  • Riley

    By when the repayments for off the plan loan gets started? I’ve already signed the loan docs for a loan application in Westpac however the title is yet to be registered and the registration is expected to be completed only after a couple of months.

  • Hi Riley,

    The repayments will start only once the settlement of the loan is completed, in chosen periods such as monthly, fortnightly or weekly. The settlement will be completed once the title gets registered and the loan documents will be certified, also the lender will ask for a certificate of occupancy before the settlement. Usually, the certificate is issued by the developer only 2 weeks prior to the settlement.

  • audrey

    I can’t provide my full financials so I might have to go low doc with this. I do have a high income though and not many current commitments so my borrowing power should be okay. Can your brokers help?

  • Hello audrey,

    Yes, we can definitely look into your application and help you to choose a suitable lender and loan product. If we can’t help then we can still point you towards someone else who may be able to. Please call 1300 889 743 to discuss this with one of our expert mortgage brokers.

  • bella

    Is it more expensive if I want to apply with a non-bank lender to finance an off the plan purchase?

  • Hey bella,

    This is not necessarily the case. Even after with these policy changes announced by APRA, there isn’t normally a large difference in the interest rates offered by banks as opposed to non-bank lenders. In fact, a non-ADI can sometimes offer an overall investment loan package that’s a lot more competitive than anything the banks can do.

  • Jhen

    Hi! I am a bit confused about the 10% downpayment in getting an off the plan house. Say, I got approved $550K by the bank and I am eyeing for an off the plan house for $550K. I had it reserved then after 5days time frame I need to give 10% deposit. Where will I get that deposit? From my own pocket or from the bank’s money that they’ll lend me? Coz If I get it out from my pocket It’ll be from my savings. And how on earth I’ll get bank’s approval later on to pay off the rest at the time of settlement If I touched my savings already? I hope I make sense. I am just really confused about this process. Thanks!

  • Hi Jhen,
    Normally people who buy off the plan have a large deposit and use their cash to make the 10% down payment.
    However if you’re borrowing 100% with a guarantor loan then you can use a deposit bond instead of cash to secure the property

  • Vanessa Hood

    Hello, we have a few months before our off the plan townhouse is due to settle. We refinanced our home loan and used equity in our home to pay the deposit and costs over a year ago and it has been stressful enough waiting for it to be built! now it is about 70% complete (the whole complex) so I know about April it should be ready to settle. Problem is, my husband just lost his job…. the loan is 99% in my name and only 1% in his name due to my higher income but we are unsure if this will bring us unstuck. We have $80000 at stake to lose. My husband is working casually and getting good $$ but we know lenders don’t like this. Beside him getting another permanent job pronto, what else should we do? Our own home has increased in value in this time as we have continued to make improvements. Thanks, Vanessa

  • Hi Vanessa,
    If your income is enough to service the debts then you will be ok. However if we need his income then casual will be a problem with most lenders. It would depend on what type of role he is in and if he is working permanent casual with regular hours or if he is working irregular hours.
    Irregular hours are a problem as the lender cannot determine his income. We can still work with an irregular income if he is 3 months in his job.
    Please call us on 1300 889 743 and ask for a casual income expert
    You might also find this page useful

  • Hema Latha

    Is it possible to get an unconditional approval from the bank, When the house is at lock up stage?. I don’t want to pay my deposit and the valuation to be low after the house is completed.

  • Hi Hema,
    Likely yes this would be ok. If there is less than 3 months to completion this should be ok

  • Hema Latha

    Thank you that gives us a piece of mind

  • Perry

    Hi, one of your brokers helped me buy a house a year ago. I now want a new loan to buy off the plan. A 80% LVR is good but my wife is on maternity leave and I need her income to meet serviceability requirements.Can one of you guys help me through this purchase too?

  • Yeah, no problem. If she’s on unpaid leave then you must have funds set aside to make repayments. Most banks have strict lending policies regarding this so can decline this application but we know lenders that can allow you to borrow. You’ll need to meet certain requirements and provide specific documentation. Please contact us or one of our brokers to discuss specifics.

  • Thomas

    I want to buy off the plan and need 90% finance to help. The loan amount will just total 350,000. I am employed F/T and PAYG but problem is my credit isn’t too good. I was in a debt agreement recently. Can Pepper Money help with this?

  • Unfortunately, Pepper won’t allow you to borrow as much and will reduce your borrowing power because it’s an off the plan finance. So you’ll need to arrange at least 25% of the finance yourself. However, we know of a select few other lenders that may be able to finance more, likely up to 85% at least. Please give us a call if you’d like to discuss this with an expert off the plan mortgage broker.

  • Sam

    Hi we are looking at buying an off the plan townhouse but only have 95% deposit. We have stamp duty saved but would need to include LMI into the loan which will be about $1,045,000 is this possible? We have a high income of around $290,000 combined per annum.

  • Hi Sam,
    Yes this is possible however it is very risky for a number of reasons
    – The property market in several capital cities is looking shaky and prices may decline between now and settlement. If the valuation comes in low you won’t be able to settle and will lose your deposit.
    – Borrowing 95% and over $1m is very difficult and few people qualify, even if they have high incomes.
    – LMI is very expensive over $1m and it cannot be added to the loan in this case. So you need a larger deposit.
    I’d only proceed if you can buy an existing property that way you can have a cooling off period and if there are any issues you can withdraw from the contract. Whereas with off the plan you cannot apply for finance until close to settlement, so your cooling off period has already ended.
    Alternatively if your family can guarantee your loan using a property that they own then getting approved would be easy by comparison. This also reduces the risk of a low valuation. So potentially talk to your family first.
    We can complete a pre-assessment for you if you would like. However I would talk to your family first about the possibility of them going guarantor. You can use this calc to see if it will work

  • Sam

    Hi Thanks for the response. Unfortunately, our family will not guarantor for us, so this isn’t an option.

  • Hi Sam,
    In that case it would be very risky for you to proceed with this purchase. I’d recommend that you consider buying an existing property rather than off the plan.

  • Hassan Hassanzadeh

    Hi, How can we make sure an off the plan lot is not sold to multiple buyers at the same time? Is it preventable by law or known at the time of signing the contract? I know it is the job of solicitor to review the contract but I am not sure how they can confirm if there is only one buyer for a given lot.

  • Hi Hassan
    I’ve never seen that happen in Australia, I wouldn’t be too concerned about it. They wouldn’t be able to process this at the time of settlement and the deposit is usually held in a trust account so I don’t think it would be easy for a developer to do something like this.

  • Sara

    Hi we bought off the plan unit on August 2015 but they didn’t deliver yet .They are extending the sunset period 2017 dec to 2018 dec but they didn’t start the work yet so we asked the builder he said that he didn’t get some approval yet from the we can’t even complete in we asked them to give some other project but they said that you cancel the old contract and get the new contract for the new project with today date.pls help me how to overcome from this we are first home buyers

  • Hi Sara
    It’s best if you seek legal advice for this. It may be best to stay in the old contract if you have locked in 2015 prices, as prices have risen significantly since then. However if it isn’t proceeding then there is no point in staying in the contract.

  • Sara

    Hi what kind of legal action I can take? My solicitor is saying that I can’t do anything , In your contract they have rights to change the sunset period anytime.

  • Hi Sara
    We’re not solicitors so unfortunately we cant be of much more help. Id recommend that you refer to your solicitor.

  • Sara

    Ok thanks for your help

  • Farcey

    I’m from Thailand (no Australian PR), and want to buy an investment property in Australia. Are foreign nationals allowed to buy an off-the-plan property?

  • Hi Farcey,
    Foreigners buying an off the plan property has been tough since the government introduced a 50% cap on foreign ownership of new developments on 1 July 2017. Foreign buyers who signed an off the plan contract 12-18 months ago can no longer qualify for a home loan at the time of settlement so it’s not advisable for foreigners to buy an off the plan property at this stage. However, they can buy a brand new property or vacant land in Australia. Learn more about it here:

  • Fergie

    I’m buying an off the plan unit in Penrith and paid a 5% deposit to the builder in June 2016. The construction is almost done but I went to check out the property, the dimensions look a lot different to what I signed in the Contract of Sale. They told me that the property is no longer 60m2 but 52m2. The layout of the rooms and living areas is also different to the unit plans I was shown. I’m missing an entire closet and living room will no longer accommodate the lounge set we bought! Can I raise this issue with the developer?

  • Hi Fergie,
    In case of off the plan properties, developers reserve the right to make variations to the design and, in most cases, these properties come with a “tolerance percentage” for variations, such as 5 to 10 per cent. Most off the plan contracts provide for changes concerning size, area, fixtures and fittings etc. Sometimes, the changes they make are minor and basically for safety reasons or unforeseen problems with the development but the key is that these changes should not “materially prejudice” (legal term) you as the buyer.

    If you think the finished output is significantly different than what you signed up for, the first you should do is to try and negotiate with the developer. If they push back, it may be worth getting advice from a solicitor. The last thing you want to do is go down a costly litigation route. However, if a solicitor believes that you have a good chance, it may be worth considering.

  • Connie

    Hi, I paid a 10% deposit for an off the plan purchase. Now, my lender says I might need another 5% in savings. Why is that?

  • Hi Connie,
    The additional 5% may be to cover purchase costs such as stamp duty, land transfer fees, legal costs which will not be included in your loan amount. The off the plan property needs to be registered prior to settlement.

  • Maxwell

    Hi, I’ve already paid a developer 69k, 10% of the purchase price. The property is a unit, off the plan which is going to settle next July. I’ll be saving up another 10% by that time, I was just concerned if I’ll be paying mortgage insurance when I apply for a home loan?

  • Hi Maxwell,
    Lenders Mortgage Insurance (LMI) is generally only applicable when borrowing over 80% of the property value. If you’ve saved up an additional 10% by next year, you won’t have to pay LMI as you’ll only be borrowing 80% of the property value.

  • Zara

    Hi, how does pre-approval work for an off the plan apartment that hasn’t been built yet?

  • Hi Zara,
    For pre-approvals, we do not provide a specific property address or a contract. We get approval based on your income and expenses/commitments. It is solely based on your financial position and whether or not you can afford the loan amount. Generally, a pre-approval last for 3 to 6 months, you can provide a contract within that time frame to move to formal approval with an off the plan apartment.