Why Should You Lock in Rates Early for Off-the-Plan?

What Makes Off-the-Plan Finance Different from a Standard Purchase

When you buy off-the-plan, approval is granted now but the loan settles when construction finishes, sometimes two or three years later. Lenders reassess your application closer to settlement to confirm your income, employment, and borrowing capacity remain consistent. If your job changes, your household income drops, or lending policy tightens, the loan you were counting on may not proceed. In our experience, buyers who treat pre-approval as a done deal rather than conditional clearance can face significant problems when construction wraps up.

Consider a purchaser who signed a contract in early 2024 for a two-bedroom apartment in Docklands with an expected completion in late 2026. At the time of signing, their income supported the purchase price comfortably, and they received conditional approval at a variable rate that sat around 6.3 per cent. By mid-2026, they had changed employers twice, moved to contract work for six months, and spent four months between roles. When the developer notified them of the upcoming settlement date, the lender declined to proceed due to insufficient income continuity. The deposit was at risk, and the purchaser needed to find alternative finance within a narrow window or face potential default.

How Deposit and LMI Costs Work When You Buy Unbuilt Property

The deposit you pay at exchange, usually 10 per cent, is held in trust and does not count toward your borrowing cost until settlement. Lenders calculate your loan amount and LMI premium based on the full contract price and the deposit you can provide at settlement, not the initial holding deposit. If you are borrowing above 80 per cent of the property value, LMI applies, and the premium is calculated on the loan amount at settlement.

Under APRA's Prudential Standard APS 112, lenders must hold additional capital against loans with an LVR above 80 per cent unless the loan is covered by eligible LMI. Most ADIs require LMI on residential loans above this threshold, and the cost is passed to the borrower. That premium can add several thousand dollars to your upfront settlement costs or be capitalised into the loan. State stamp duty may also apply to the LMI premium depending on where you are buying. Victoria does not charge duty on LMI premiums, but other states may.

Can You Use the Australian Government 5% Deposit Scheme for Off-the-Plan?

You can apply for the Australian Government 5% Deposit Scheme when purchasing off-the-plan, provided the property meets the price caps and you meet the eligibility criteria. In Victoria, the price cap is $950,000 in Melbourne and regional centres such as Geelong, and $650,000 in other areas. The scheme enables you to purchase with a deposit of 5 per cent without paying LMI, as Housing Australia guarantees up to 15 per cent of the property value to the participating lender.

Applications are made through participating lenders, not directly through Housing Australia. The panel has expanded since October 2025 and now includes major banks and a range of non-major lenders. If the property you are buying is new, which off-the-plan purchases by definition are, you may also be eligible for the Victorian first home owner grant of $10,000 on properties valued up to $750,000. The full stamp duty exemption applies on properties valued up to $600,000 where the property will be your principal place of residence, with a sliding concession between $600,001 and $750,000. The off-the-plan duty concession, available for contracts signed on or before 31 October 2026, means duty is calculated on the land value at the contract date only, which can deliver meaningful savings even if you are not a first home buyer.

What Happens If Your Borrowing Capacity Drops Before Settlement

Borrowing capacity is recalculated at settlement using the same serviceability buffer that applied at pre-approval, currently 3.0 percentage points above the loan product rate. If interest rates rise between signing and settlement, or if your income drops, you may no longer meet the lender's serviceability test even if your employment and credit profile remain unchanged. APRA's DTI lending limits, which took effect from 1 February 2026, also restrict the proportion of new loans ADIs can write to borrowers with a total DTI ratio of six times or greater. If you fall into that category at settlement, some lenders may decline or require a larger deposit.

In a scenario like this, a buyer who signed for a one-bedroom apartment in Southbank in mid-2025 with settlement expected in late 2026 saw their household income reduce when their partner took parental leave. The couple had been assessed on dual incomes at the time of pre-approval, but only one income was available at settlement. The lender reassessed and determined the borrowing capacity had dropped below the contract price. The buyers needed to find an additional deposit or seek a non-ADI lender with different serviceability criteria. They ultimately secured finance through a second-tier lender at a higher rate and with a lower LVR to meet the shortfall.

Should You Fix Your Rate at Pre-Approval or Wait Until Settlement

Rate lock products allow you to fix your interest rate at the time of pre-approval rather than waiting until settlement. This protects you if fixed rates rise during construction, but it also means you will not benefit if rates fall. Most lenders charge a fee for extended rate lock periods, and not all lenders offer this product for off-the-plan purchases. The lock period typically runs for 12 months, and extensions may be available for an additional fee if construction is delayed.

If you expect rates to rise or want certainty over your repayment amount from day one, locking at pre-approval can make sense. If you prefer to wait and assess the rate environment closer to settlement, you can take the variable rate or fix at settlement. A split rate loan, where part of the loan is fixed and part remains variable, gives you some protection against rate increases while retaining the flexibility to make extra repayments on the variable portion and access any offset account linked to that split.

How Changes to Negative Gearing Rules Affect Off-the-Plan Investors

If you are purchasing off-the-plan as an investment and settlement occurs after the property is purchased post 7:30pm AEST on 12 May 2026, losses on the property from the 2027-28 income year onward can only be offset against other residential property income, not against salary or wage income. This is the effect of the Treasury Laws Amendment (Tax Reform No. 1) Act 2026, which received royal assent on 26 June 2026. The change applies to residential investment properties purchased after that date and time, and most off-the-plan contracts signed from mid-2026 onward will settle after that threshold.

From 1 July 2027, the 50 per cent CGT discount on residential property is replaced by cost base indexation and a 30 per cent minimum tax rate on gains accruing from that date. Investors will index the cost base of their property in line with inflation and pay tax only on above-inflation gains. If you are buying off-the-plan to hold as an investment, the financing structure, expected rental yield, and tax treatment from settlement onward should all be factored into your borrowing decision. Speak to a tax adviser or accountant before committing to a contract if you are unsure how the new rules apply to your situation.

Call one of our team or book an appointment at a time that works for you. We work with lenders across the panel, including those participating in the Australian Government 5% Deposit Scheme, and we will walk through your pre-approval, rate options, and what to expect between now and settlement.

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