Off-the-Plan Purchases: What First Home Buyers Get Wrong

Off-the-Plan Purchases Lock in Today's Concessions, Not Tomorrow's

Off-the-plan contracts are signed before construction is finished. The property settles 12 to 24 months later, sometimes longer. Stamp duty eligibility, grant thresholds and deposit rules are assessed at the date you sign the contract, not the date you settle. That means the concessions available when you exchange remain locked in, even if thresholds change before settlement.

For a buyer working with a business accountant who advises that income is likely to increase in the next 18 months, this becomes relevant. If you sign an off-the-plan contract now while your taxable income sits at $95,000, you remain eligible for schemes with income thresholds, even if your income rises to $110,000 by settlement. The same applies to stamp duty concessions. New South Wales offers full transfer duty exemption on new homes valued up to $800,000 for first home buyers. If you sign a contract for an apartment valued at $780,000 and the development completes 18 months later when comparable sales suggest the unit is now worth $820,000, your stamp duty is still assessed on the $780,000 contract price, and the full exemption still applies.

Consider a buyer purchasing an off-the-plan unit in the Inner West with a contract price of $790,000. At contract signing, they meet the eligibility criteria under the Australian Government 5% Deposit Scheme and the New South Wales stamp duty exemption. Settlement is due 16 months later. During construction, their employer relocates them to a regional project role and their household income increases to $165,000. Because eligibility was assessed and locked in at contract signing, both the 5% deposit scheme and the stamp duty exemption remain available. The buyer settles on schedule, avoids LMI and pays no transfer duty, despite the income change during the construction period.

Settlement Date Finance Clauses Expire Before Construction Starts

Most off-the-plan contracts include a finance clause that gives the buyer 30 to 60 days to secure conditional loan approval. Once that period expires, the contract becomes unconditional. The issue is that lenders will not issue final approval until the property is completed, titled and independently valued. That means the approval you rely on during the clause period is conditional, not formal, and final approval happens 12 to 24 months later when construction finishes.

Lenders assess your application based on the contract price and floor plan, but the final loan is issued once the property has been valued at completion. If the valuation at settlement comes in lower than the contract price, the lender will reduce the approved loan amount. If you purchased with a 10% deposit using the contract price of $750,000, your deposit covers $75,000 and the lender was prepared to advance $675,000. If the valuation at settlement returns at $710,000, the lender now advances only 90% of that figure, which is $639,000. The shortfall of $36,000 must be paid by you at settlement or the contract defaults.

In our experience, buyers who secure pre-approval during the finance clause period and then assume the loan is locked in often encounter issues at settlement when employment or income circumstances have changed. Lenders reassess your full financial position at settlement, not just at the time of conditional approval. If your business income was stable when you signed the contract but has since dropped due to a client loss or revenue decline, the lender may reduce the loan amount or decline the application entirely. Buyers who operate as sole traders or hold company director roles are particularly exposed because lender policy on self-employed income has tightened over the last two years, and what was acceptable at contract signing may no longer meet serviceability requirements at settlement.

Deposit Structures for Off-the-Plan Differ from Established Property

Off-the-plan contracts typically require a 10% deposit. That deposit is paid in stages: 5% on exchange, with the remaining 5% due 30 to 90 days later. The deposit is held by the developer's solicitor in a trust account or released to the developer depending on whether the contract is sunset clause protected. If the contract includes a sunset clause and the developer fails to complete by that date, the buyer is entitled to a refund of the deposit without penalty. If the contract does not include a sunset clause or the developer extends the clause under the contract terms, the buyer may forfeit the deposit if they attempt to withdraw.

Under the Australian Government 5% Deposit Scheme, buyers can exchange with a 5% deposit and avoid LMI. The scheme can be used for off-the-plan purchases, and the property price caps are the same as for established homes. In New South Wales, the price cap is $1,500,000 for capital city and regional centre properties. In Victoria, the cap is $950,000. Buyers using the scheme for an off-the-plan purchase should confirm that their chosen lender participates in the scheme and that the lender's policy allows for the delayed settlement and extended conditional approval period typical of off-the-plan contracts. Not all participating lenders accept off-the-plan purchases under the scheme, and buyers may need to approach two or three lenders before finding one that will proceed.

For buyers who need to pay a 10% deposit under the contract but only hold 5% in savings, the second instalment can sometimes be covered by a deposit bond or a top-up gift from a parent. Lenders treat gifted deposits differently depending on the proportion gifted and the relationship of the contributor. If a parent provides 2% of the purchase price as a gift and the buyer contributes the remaining 8%, most lenders will accept the structure as long as a signed gift letter confirms the funds are non-refundable and do not create a debt. If the gifted portion exceeds 5%, some lenders may decline the application or require the contributor to sign as a guarantor, which affects the buyer's borrowing capacity and the lender's assessment of the loan-to-value ratio.

Lenders Require Construction Progress Reports Before Final Approval

Off-the-plan finance is not finalised until the lender has received a valuation report and confirmed that construction is complete. Most lenders will issue conditional approval at contract signing, but they require updated documentation at settlement including a final valuation, a certificate of occupancy or compliance certificate, and confirmation that the property has been titled and registered. If the developer delays completion or fails to meet building standards, the lender can decline to settle or reduce the approved loan amount.

Buyers who have used the conditional approval period to take on additional debt, such as a car loan or business overdraft, may find that the lender's final assessment no longer supports the original loan amount. Lenders recalculate your borrowing capacity at settlement using your current income, liabilities and expenses. If your credit card limit has increased or you have financed equipment for your business, your serviceability will be lower than it was at contract signing. This issue is common among business owners who use flexible credit facilities to manage cash flow. A buyer who signed a contract in mid-2025 with a taxable income of $120,000 and no business debt may now carry a $30,000 equipment lease and a $15,000 trade credit facility. At settlement, the lender factors those liabilities into the serviceability calculation, which reduces the approved loan amount or requires the buyer to pay down the debt before settlement proceeds.

Sunset Clauses Protect Buyers if the Developer Cannot Deliver

A sunset clause is a contract term that sets a final completion date. If the developer does not complete construction and register the title by that date, the buyer can terminate the contract and receive a full refund of the deposit. Some contracts include sunset clauses set 24 to 36 months from the contract date. Other contracts include clauses that allow the developer to extend the completion date unilaterally, which reduces the protection available to the buyer.

If a sunset clause is not included or the developer extends the date under the contract terms, the buyer cannot withdraw without forfeiting the deposit. Buyers who need to exit the contract due to changed financial circumstances, job loss or relationship breakdown must negotiate with the developer. In some cases, the developer will agree to reassign the contract to a new buyer for a fee. In other cases, the developer will pursue the buyer for damages, which may include the difference between the contract price and the resale price if the property is sold at a loss, plus legal costs.

Buyers who operate businesses with variable income should assess whether their income and cash flow can support the loan at settlement before signing the contract. If your business is in a growth phase and you are reinvesting profit rather than drawing salary, lenders may assess your income as lower at settlement than at contract signing. That can create a shortfall between the loan amount you were conditionally approved for and the amount the lender will advance at settlement. First home buyers working with a mortgage broker before signing can model different income scenarios and confirm whether the loan structure remains viable if business income fluctuates during the construction period.

Variable Rate Loans Provide More Flexibility Than Fixed Rates for Off-the-Plan Buyers

Fixed rate loans lock in your interest rate for a set period, typically one to five years. Variable rate loans fluctuate with the lender's standard rate. Most buyers assume that fixing the rate at contract signing protects them from rate rises during the construction period. That assumption is incorrect because the fixed rate is not locked in until the loan settles. If you apply for a fixed rate loan at contract signing and rates increase before settlement, the lender will offer the current fixed rate at settlement, not the rate available when you submitted your conditional application.

Variable rate loans typically include offset account access, which allows buyers to deposit savings into a linked transaction account and reduce the interest charged on the loan balance. Fixed rate loans either exclude offset accounts entirely or charge a higher rate to include the feature. For buyers who are accumulating savings during the construction period or who expect lump sum income from business distributions, an offset account provides more value than fixing the rate.

In our experience, buyers who fix the rate at settlement without considering the construction delay often regret the decision when they realise the rate they locked in is higher than the variable rate available 12 months later. Buyers who want rate certainty should wait until three to six months before the expected settlement date to lock in a fixed rate, rather than fixing at contract signing. That approach reduces the risk of locking in a rate that becomes uncompetitive during the construction period. Buyers who want both flexibility and rate protection can use a split loan structure, fixing a portion of the loan and leaving the remainder on a variable rate with offset access. Loan structures are covered in detail under home loans, and buyers should discuss the timing of rate locks with their broker before finalising the application.

Call one of our team or book an appointment at a time that works for you to confirm how settlement timing, deposit structures and lender reassessment affect your off-the-plan purchase and whether your current income and loan structure will support final approval.

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