Common Mistakes Buying Off-the-Plan

Off-the-plan purchases lock you into a contract now, but the property won't settle for 18 to 36 months.

That gap creates real problems. Your income, employment status, and lending policy can all shift before settlement arrives. A home loan pre-approved today might not be honoured in two years. The apartment you signed for at $650,000 might be valued by the bank at $590,000 when construction finishes. You need to understand what changes between contract and settlement, and how those changes affect your ability to complete the purchase.

Using Pre-Approval as Your Only Finance Safety Net

Pre-approval gives you conditional credit approval based on current income, employment, and lending policy. It expires after three to six months and offers no protection at settlement.

Consider an early childhood educator earning $72,000 annually who signs a contract for a two-bedroom apartment in a new development. She obtains pre-approval showing she can borrow $520,000. The contract settles in 24 months. During that time, her lender tightens serviceability policy and now calculates her maximum borrowing at $485,000. Her income and deposit haven't changed, but the loan she was pre-approved for no longer exists. She either finds a different lender willing to lend the shortfall, increases her deposit by $35,000, or defaults on the contract and loses her deposit plus faces potential legal action from the developer.

You need a finance clause in the contract, typically 42 days for off-the-plan purchases. That clause protects you if formal approval isn't granted. But you also need to reconfirm serviceability and policy settings closer to settlement. Some lenders will issue a fresh conditional approval six months before the scheduled settlement date. Others won't commit until construction reaches practical completion. Ask your mortgage broker for teachers which lenders offer mid-term reconfirmation and build that into your timeline.

Assuming the Valuation Will Match the Purchase Price

Banks lend against the lower of purchase price or valuation. If the completed apartment is valued below your contract price, you need to cover the difference with additional deposit funds.

In some developments, particularly high-density projects in oversupplied markets, the valuation at settlement comes in 5% to 10% below the contract price. A $600,000 apartment valued at $540,000 creates a $60,000 shortfall. If you were borrowing 90% of the purchase price, you now need to find an extra $60,000 in cash or accept a higher loan-to-value ratio, which triggers LMI where it might not have applied before.

You can't control the valuation, but you can reduce the risk. Avoid developments with more than 200 units in a single release. Research recent sales in the same building or nearby projects completed by the same developer. If comparable two-bedroom units are selling for $580,000 and your contract price is $650,000, you're carrying valuation risk. Some buyers negotiate a clause allowing them to withdraw if the bank valuation falls more than 5% below the purchase price, though developers rarely agree to this without adjusting other terms.

Relying on Sunset Clauses Without Understanding Who Controls Them

A sunset clause lets either party terminate the contract if settlement doesn't occur by a specified date, usually 24 to 36 months from signing. Developers can use this clause to cancel contracts in rising markets and resell units at higher prices.

In a scenario where a principal signs a contract in early 2024 for a unit priced at $580,000 with a sunset date of March 2027, the developer lodges for plan registration in January 2027 but delays final approval by two weeks. The sunset date passes. The developer cancels the contract, refunds the deposit, and relists the same unit at $640,000. The buyer has no claim beyond the deposit refund. The contract allowed it.

You should negotiate a sunset clause that requires the developer to obtain your written consent before using the clause to terminate, or include a compensation mechanism if the developer triggers the sunset clause for reasons within their control. Some contracts now include a minimum notice period of 28 days if the developer intends to rely on the sunset clause, giving you time to seek legal advice or negotiate an extension. Read the termination provisions in full before signing.

Ignoring Changes to Lending Policy Between Contract and Settlement

Lenders adjust serviceability buffers, debt-to-income limits, and postcode-specific policies throughout the construction period. A loan structure available when you signed the contract might not exist when you settle.

From February 2026, APRA introduced a debt-to-income lending limit requiring lenders to cap the proportion of new loans at six times income or more. If your loan sits just above that threshold, some lenders will decline the application outright rather than adjust loan terms. Other lenders tightened policy on high-density apartment postcodes, particularly where multiple developments are settling simultaneously. A postcode that had no policy overlay in 2024 might be flagged as oversupplied by 2026, reducing maximum LVR to 80% even for owner-occupiers.

You can't predict every policy shift, but you can choose a lender with a stable risk appetite. Work with a broker who tracks policy changes across multiple lenders and maintains relationships with credit teams. If your lender tightens policy mid-construction, you need time to switch to an alternative lender before the settlement date locks in. Leaving this to the final 30 days creates unnecessary pressure.

Underestimating Settlement Costs on Top of the Deposit

Your deposit covers part of the purchase price. Settlement costs cover everything else needed to complete the transaction, including stamp duty, legal fees, loan establishment fees, building and pest inspection, strata report, and initial strata levies.

For a $620,000 off-the-plan apartment in Queensland purchased by a first home buyer, stamp duty is nil under the first home new home concession. Legal fees run $1,800 to $2,500. Loan establishment fees range from $600 to $1,200 depending on lender. The strata report costs $300 to $400. Initial strata levies might require one quarter paid in advance, around $800 to $1,200. Registration and title fees add another $500. Total settlement costs sit around $4,200 to $6,300 even with no stamp duty. If you're also paying LMI because your deposit is below 20%, add another $15,000 to $25,000 depending on loan amount and LVR. Many buyers budget for the deposit and forget the settlement costs, then scramble to find an additional $20,000 in the final weeks before settlement.

Build a full cost estimate before you sign the contract. Include every fee, even the small ones. Keep those funds separate from your deposit savings so you're not forced to reduce your deposit to cover settlement.

Not Checking Whether the Development Qualifies for the Scheme You're Relying On

The Australian Government 5% Deposit Scheme and Help to Buy both apply to off-the-plan purchases, but eligibility depends on contract timing, completion timing, and property price caps.

Property price caps apply to both the purchase price and the bank's valuation. If your contract price is $795,000 and the price cap in your state is $800,000, you're within the cap at signing. But if the valuation at settlement comes in at $805,000 due to market movement or inclusion of upgrades in the valuation, you're no longer eligible. The scheme cannot be applied retrospectively, and you'll need to find the additional deposit funds to meet standard lending requirements without the government guarantee.

Some developers incorrectly advertise that their project qualifies for the scheme without confirming that all units meet the price caps or that the buyer's chosen lender is a participating lender. Confirm eligibility in writing with your lender before you exchange contracts. If you're relying on the Help to Buy scheme, check that the developer hasn't included non-structural upgrades in the contract price that push the valuation above the cap. Some buyers remove optional inclusions to bring the purchase price back within the threshold.

Choosing Interest-Only Loans for Off-the-Plan Purchases Without a Repayment Plan

Interest-only loans reduce repayments during construction, but they don't reduce the loan balance. Once the interest-only period ends, repayments jump sharply when the loan converts to principal and interest.

Some buyers choose interest-only terms to keep repayments low during the settlement period, planning to refinance or sell before the principal repayments begin. If the market softens and the property can't be sold at a price that clears the loan, or if refinancing is declined due to serviceability or valuation issues, you're locked into repayments that might exceed your capacity. In our experience, loans structured as interest-only at settlement often revert to principal and interest within 12 to 24 months once the lender reviews the loan purpose and occupancy status.

If you're buying off-the-plan as an owner-occupier, structure the loan as principal and interest from settlement unless there's a clear financial reason to delay equity build-up. If you're buying as an investment, model the repayment increase when the interest-only period ends and confirm you can service the loan on a principal and interest basis. Lenders assess serviceability on principal and interest repayments regardless of the loan structure you choose, so the buffer is already factored into the approval.

Failing to Review the Contract for Variations Clauses

Most off-the-plan contracts include a variations clause allowing the developer to make minor changes to the design, materials, or layout without buyer consent. What counts as minor is often defined loosely.

A buyer contracts for an apartment with floor-to-ceiling glass across the living area. The contract includes a variations clause permitting changes to fenestration and materials provided the overall design intent is maintained. The developer substitutes the full glass wall with a standard window and sliding door, reducing natural light and the unit's appeal. The buyer has no right to terminate because the contract permitted the variation. The bank's valuation reflects the as-built condition, which may be lower than expected, creating a shortfall at settlement.

Read the variations clause in detail. Some contracts limit variations to structural changes required by regulation or building certifier direction. Others give the developer broad discretion to substitute materials or finishes. If the clause is too broad, negotiate a schedule of fixed inclusions that can't be varied, or a right to terminate if variations exceed a certain threshold. You can also request regular progress updates with photos to confirm the build matches the contract specifications, though developers aren't obliged to provide this unless it's written into the contract.

Call one of our team or book an appointment at a time that works for you. We'll review your contract timeline, confirm lender policy for off-the-plan purchases, and structure a loan that protects your position from contract through to settlement.

Frequently Asked Questions