Off-the-Plan & What Not to Expect as a First Buyer

Off-the-plan purchases settle months or years after you sign the contract.

That delay changes how deposits work, when valuations occur, and which concessions apply. A property valued at contract today may be assessed differently by your lender when construction finishes. If the valuation comes in lower than the contract price, your deposit may no longer cover the minimum percentage required by your lender, and you will need to find additional funds or renegotiate.

How the Deposit Timeline Works for Off-the-Plan Buyers

You pay a percentage of the contract price when you sign, typically 10%, and the remainder when the property settles. For first home buyers in Capel Sound using the Australian Government 5% Deposit Scheme, the contract price must fall within the Melbourne cap of $950,000. The deposit itself can be as low as 5% of the contract price, but your lender will not assess the loan until closer to settlement, often when the property reaches practical completion or title is issued.

The gap between contract and settlement can stretch beyond two years depending on the development. During that period, lending criteria may tighten, your employment circumstances may change, or your lender's serviceability buffer may increase. A pre-approval issued at contract will expire well before settlement, so the formal application happens much later than the contract date.

When Valuations Are Conducted and Why It Matters

Lenders value off-the-plan properties at or near practical completion, not at the contract date. If the local market softens between contract and settlement, the completed property may be valued below your contract price. Consider a buyer who contracts to purchase a two-bedroom apartment for $900,000 with a 5% deposit of $45,000. At settlement, the lender's valuer assesses the completed unit at $850,000. The lender will now calculate the loan-to-value ratio against $850,000, not $900,000. A 95% loan against $850,000 is $807,500, but the buyer owes the developer $855,000. That buyer needs to find an additional $47,500 or negotiate a price reduction with the developer.

This outcome is not uncommon when construction timelines blow out or when unit supply increases in a precinct. Buyers relying on minimum deposits need a cash buffer or access to additional funds if the valuation falls short.

Stamp Duty Concessions Apply at Contract, Not Settlement

Victorian stamp duty concessions for first home buyers are calculated based on the dutiable value at the contract date. For off-the-plan purchases, that value is typically the land value component at the time you sign, not the completed property value. Full exemption applies up to $600,000, with a sliding scale concession to $750,000. Properties valued above $750,000 attract standard duty rates.

The off-the-plan duty concession for strata or community title properties signed on or before 31 October 2026 calculates duty on land value only, meaning the building component is excluded. This concession applies to all buyers during the eligible period, not just first home buyers. If your contract was signed after that date, the full contract price will be used to determine duty unless an extension is announced.

You must also occupy the property as your principal place of residence to retain the concession. If circumstances change and you no longer intend to live in the property at settlement, the concession may be clawed back.

Sunset Clauses and What Happens if Settlement is Delayed

Most off-the-plan contracts include a sunset clause, which allows either party to terminate the contract if settlement does not occur by a specified date. Developers sometimes extend the sunset date by mutual agreement, but if the date passes without settlement or extension, the contract may be rescinded and your deposit refunded.

If the developer terminates under a sunset clause and property values have risen, you lose the benefit of that capital gain. If values have fallen and you terminate, you may avoid settling on a property now worth less than the contract price, but you also lose the time and opportunity cost of holding that contract.

Lenders will not hold a pre-approval open for the full construction period. You will need to reapply closer to settlement, and lending conditions at that time may differ from those at contract. Interest rates, deposit requirements, and debt-to-income assessments can all shift during a long construction period.

Construction Loans Versus Off-the-Plan Purchases

Off-the-plan buyers do not arrange a construction loan. The developer holds the head construction contract, and the buyer contracts to purchase the completed dwelling. The buyer's loan is a standard purchase loan that settles in a single drawdown when the property is ready for occupation.

If you are building your own home on vacant land, the loan structure is different. Funds are drawn progressively as construction stages are completed, and you may need to cover interest during the build. That distinction matters when comparing deposit requirements and how long your funds are committed before settlement.

LMI, 5% Deposits and How the Scheme Protects You From One Cost

First home buyers using the Australian Government 5% Deposit Scheme do not pay Lenders Mortgage Insurance, even though the deposit is below 20%. Housing Australia guarantees the difference between your deposit and 20% of the property value. The scheme has no income caps and no annual place limits, but it is only available through participating lenders.

The property price cap for Melbourne is $950,000. The property must be your principal place of residence. If the valuation at settlement falls below the contract price, the guarantee applies to the lower valuation figure, not the contract price. That distinction reinforces why a valuation shortfall can require additional deposit funds even under the scheme.

Buyers who do not qualify for the scheme or who purchase outside the price cap will pay LMI if their deposit is below 20%. LMI premiums rise as the deposit percentage falls. A 10% deposit will attract a lower LMI premium than a 5% deposit on the same property value.

Should You Fix Your Rate Before Settlement

You cannot lock in a fixed rate until your loan is formally approved and ready to settle. Some lenders offer a rate lock for 90 days before settlement, but most off-the-plan purchases settle well beyond that window from the date of contract. If fixed rates rise between contract and settlement, you will pay the prevailing rate at settlement, not the rate available when you signed the contract.

Variable rates move throughout the construction period, and your serviceability will be tested at the rate applicable when you lodge your formal application. Buyers concerned about rate movements closer to settlement should discuss timing and rate options with their broker once a settlement date is confirmed.

Using a Broker to Manage the Application Timeline

Off-the-plan finance requires coordination between contract milestones, lender processing times, and developer schedules. A mortgage broker in Capel Sound will monitor the development's progress, ensure your application is lodged at the right stage, and confirm that your deposit structure aligns with the lender's requirements at settlement.

Brokers also maintain contact with your lender during the construction period so that policy changes or serviceability adjustments are flagged before they affect your approval. If a valuation shortfall occurs, your broker can present options including alternative lenders, restructured deposits, or negotiations with the developer.

Off-the-plan purchases involve more variables than buying an established home. The contract you sign today will settle in a future lending environment, and the property you contracted to buy will be valued in a future market. Understanding those timing gaps and preparing for valuation or policy shifts will help you reach settlement without unexpected funding pressure.

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

Frequently Asked Questions