Do you know how off-the-plan loans lock in?

The loan you apply for today might settle in 18 months.

Off-the-plan purchases in suburbs like Burwood and Ashfield come with a delay between signing the contract and taking ownership. That gap creates a planning question: how do you lock in your home loan now when interest rates, lending policy, and your own financial position might all shift before settlement?

What happens to your pre-approval during construction

Most lenders issue pre-approval for 90 days, sometimes extending to 120. Off-the-plan developments in the Inner West often take 12 to 24 months to complete. Your initial pre-approval will expire well before you settle.

When the building reaches practical completion, the lender reassesses your position. They reconfirm your income, check your credit file again, and value the finished property. If your income has dropped, your expenses have increased, or lending policy has tightened, you might not qualify under the same terms you were originally quoted. Lenders are not obliged to honour expired pre-approvals.

Consider a buyer who signed a contract in Croydon Park in early 2025 with an expected completion in mid-2026. At contract signing, they had stable income and modest living expenses. By the time the developer notified practical completion, the buyer had taken parental leave and their assessable income had reduced. The lender reassessed at settlement and required a larger deposit to proceed. The buyer had to arrange a family guarantee to bridge the shortfall rather than delay settlement.

Interest rate type and timing for settlement

You select your loan structure at settlement, not at contract signing. If you want a fixed rate, the rate you lock in applies from the settlement date forward. Fixed rates offered 18 months before settlement have no bearing on the rate available when you draw down the loan.

Some buyers assume they can lock in a fixed rate early and carry it through to settlement. That is not how the product works. The fixed rate term begins when the loan is drawn, which is when settlement occurs. If fixed rates rise during construction, you will settle at the prevailing rate unless your lender offers a formal rate lock product with a fee.

A smaller number of lenders offer extended rate lock options for off-the-plan purchases, allowing you to pay a fee to secure a rate up to 12 months before settlement. The fee is typically non-refundable and the rate locked is often slightly higher than the standard advertised rate at the time of the lock. This product suits buyers who want certainty and are prepared to pay for it, particularly if they expect rates to rise before completion.

Valuation risk when the building is finished

Lenders value the property twice. The first valuation, at pre-approval, is based on the contract price and the development plans. The second valuation, at settlement, is based on the finished apartment or townhouse and the market at that time.

If the market has softened or the development has not met expectations, the lender's valuation might come in below the contract price. The loan amount is calculated using the lower of the purchase price and the lender's valuation. If the valuation falls short, you need to make up the difference in cash or renegotiate your deposit structure.

In our experience, valuation shortfalls occur more often in precincts with high supply of similar stock completing around the same time. Burwood has seen multiple developments complete within overlapping periods. If comparable sales data shows weaker prices at settlement than at contract signing, the lender will use the lower figure. Some buyers in this position have needed to delay settlement or seek a family guarantee to cover the gap.

Deposit structure and the 10 per cent hurdle

Most off-the-plan contracts require a 10 per cent deposit, paid in stages. A typical structure is 5 per cent on exchange and 5 per cent within 90 days. Some developers allow smaller initial payments, but 10 per cent total by a set milestone is standard.

If you are applying under the Australian Government 5% Deposit Scheme, you still need to meet the developer's deposit terms from the contract. The scheme reduces the deposit required for the lender to approve the loan, but it does not change the deposit the developer requires under the contract. You might need to pay 10 per cent to the developer and then structure your loan at settlement with a 5 per cent deposit plus the government guarantee, receiving a partial refund of your deposit at settlement depending on how the settlement statement reconciles.

Buyers using the scheme for an off-the-plan purchase in Petersham or Stanmore should confirm with both the developer's solicitor and their lender how the deposit and settlement funds will be applied. The contracts are not always written with low-deposit lending in mind.

Borrowing capacity shifts during construction

Lenders apply a serviceability buffer when assessing your loan. They test whether you can afford repayments at a rate 3.0 percentage points above the actual loan rate. That buffer has been in place since late 2021 and applies to all new loans from banks and lenders regulated by APRA.

If you take on new debt during construction, such as a car loan or higher credit card limit, your borrowing capacity at settlement will be lower than at pre-approval. Lenders also reassess your living expenses. If you have moved to a higher rent or your household size has changed, the updated figures flow through to the serviceability calculation.

From February 2026, lenders also apply a debt-to-income lending limit. Each lender can write no more than 20 per cent of new owner-occupier loans to borrowers with a total debt-to-income ratio of six times or more. If your income has not kept pace with your intended loan amount, or if you have taken on other debt, you might fall into the restricted portion of the lender's portfolio and face closer scrutiny or decline at settlement.

How lender policy changes between contract and settlement

Lending policy can tighten without notice. A lender might reduce the maximum loan-to-value ratio for off-the-plan purchases, increase the income evidence required, or stop lending in certain postcodes if they consider the area oversupplied.

We regularly see lenders change their approach to new apartment developments mid-construction. A building pre-approved under one set of criteria might be reassessed under stricter rules by the time it is finished. The lender is not obliged to continue under the original policy if their risk settings have changed.

In some cases, buyers have needed to switch lenders between pre-approval and settlement because their original lender withdrew from a particular development or postcode. Switching lenders at settlement adds time and cost, but it is sometimes the only path forward if the original lender declines to proceed.

Sunset clauses and finance terms in the contract

Your contract will include a sunset date, which is the longstop date by which the developer must complete the building. If the development is not finished by that date, either party can rescind the contract. Developers sometimes push to extend the sunset date if construction is delayed. You are not obliged to agree, but if you refuse and the developer cannot meet the original date, the contract may be rescinded and your deposit returned.

The contract should also include a finance clause that gives you a set period, often 14 to 21 days, to obtain formal loan approval. If you cannot obtain approval in that period, you can rescind the contract and recover your deposit. The finance clause applies at the time of contract signing, not at settlement. Once the finance clause period expires, you are generally bound to settle regardless of whether your lending situation changes during construction.

Call one of our team or book an appointment at a time that works for you. We work with buyers in Ashfield, Burwood, Croydon Park, Petersham, and Stanmore to structure home loan applications that account for the timing and risk of off-the-plan purchases, and we will reassess your position before settlement to confirm the loan remains on course.

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