An off the plan property is one that has been sold before it has been completed, often before construction has started. In an off the plan sale, the seller is a developer and the purchaser will be the first owner of the new property.
The process for purchasing an off the plan property is similar to purchasing a new property. Please read our FINANCE MADE EASY loan steps to learn more.
The main difference is that the purchase date is usually made very far in advance – 2 years or more before completion of the property.
This means that purchasers often exchange contracts first and then wait close to settlement to assess their position and apply for finance. Even though the settlement is many months or years away, we would encourage you to assess your scenario first for the ability to borrow, before exchanging contracts.
We recommend applying for your loan approval 2 – 4 months out from settlement. If you are uncertain of your ability to obtain finance, and you have already exchanged contracts, you should talk to us as soon as possible even if the settlement is a long way away.
Valuation inspections will usually be held once the properties have finished construction and all the fixtures and finishings have been applied to your property. This is typically 4 weeks out from settlement date.
If your off the plan property is a unit and you are purchasing as an investment property at the time of writing many banks are restricting the maximum LVR to 80% and in some instances 70%. If the property will be purchased as a home, then it is possible to purchase at 80 – 90% LVR, however Lenders Mortgage Insurance (LMI) may be incurred.
Yes, if you purchased a long time ago and the value of your property has risen, some banks will allow you to borrow against the current market value.
This is useful as you will be able to borrow more without incurring LMI, meaning you can contribute less at settlement. This is valuable where you are purchasing the property as an investment. However, you will need to be comfortable with the higher repayments that come with borrowing more.
The main risks of purchasing an off the plan property are:
We have managed 100+ off the plan settlements, and know how to manage and eliminate these risks where possible, so please contact us if you have an off the plan purchase.
Valuation risk is where the official valuation report ordered by the bank states that the property is worth less than what it was purchased for.
This creates a situation where the bank will calculate their LVR only against the value in their valuation report. This means they will lend you less money which means you will need to put in more to settle the property.
We can manage valuation risk by applying for your loan early enough that we have the opportunity to order more than one valuation and adjust our strategy as required. Valuers will have different views and different dates to determine the property value. Although the valuer is independent and cannot be handpicked, each bank uses different valuers and we find a range appears when we order different valuations.
Yes, before you exchange on the off the plan property we will be able to determine your borrowing capacity and identify any risks to give you confidence that you will be able to settle your property once it is finished.
We can also advise of your deposit requirements and the impact of any valuation risk to how much you will need to contribute.