The Main Advantage for Victorian First Home Buyers
Off-the-plan properties offer Victorian first home buyers substantial stamp duty concessions that can save thousands compared to established homes. Under the First Home Owner Grant framework in Victoria, you may pay no stamp duty on properties valued up to $600,000, with concessions available up to $750,000. The property value is assessed at contract signing, not at settlement, which means if the property increases in value during construction, you still pay stamp duty based on the original contract price.
Consider a buyer who signs a contract for an off-the-plan apartment in Footscray at $580,000. If the property is valued at $620,000 by the time it settles 18 months later, they still receive the full stamp duty exemption based on the $580,000 contract price. On an established home at $620,000, they would have paid stamp duty of around $10,870, even with first home buyer concessions.
How the Settlement Timeline Affects Your Home Loan Application
Off-the-plan purchases settle anywhere from 12 to 36 months after signing the contract, and lenders assess your borrowing capacity at settlement, not at contract signing. Your income, expenses, and the lender's policy can all change during construction. A pre-approval you receive today typically expires after three to six months, which means you'll need to reapply closer to settlement.
In our experience, buyers who lock in a contract thinking their current income supports the loan can face challenges if their employment situation changes during construction. Your deposit sits in trust during this period, so if your borrowing capacity drops and the lender declines your application at settlement, you may forfeit your deposit.
Deposit Options That Work With Construction Delays
Most off-the-plan contracts require a 10% deposit, though some developers accept 5%. The 5% Deposit Scheme and Regional First Home Buyer Guarantee both apply to off-the-plan properties, provided the property meets the scheme price caps and you meet eligibility requirements at settlement.
A 10% deposit on a $550,000 off-the-plan townhouse in Melton would be $55,000. If you're using the First Home Super Saver Scheme, you can withdraw up to $50,000 of voluntary superannuation contributions plus earnings. This would cover most of the deposit, with the remaining $5,000 coming from savings or a gift deposit from family. The scheme allows you to build this deposit over multiple financial years while the property is under construction.
Managing Interest Rate Changes During Construction
You cannot lock in a fixed interest rate until shortly before settlement. If interest rates rise during the construction period, your borrowing capacity may decrease, even if your income stays the same. Lenders use current interest rates and serviceability buffers to calculate how much you can borrow.
As an example, if you sign a contract when variable interest rates sit at one level, but rates increase by 1% before settlement, the same income might support $30,000 to $40,000 less in borrowing capacity depending on your circumstances. This can create a gap between the purchase price and what the lender will approve. Some buyers address this by increasing their deposit during construction or having a family member act as guarantor closer to settlement.
What Happens If the Developer Delays Completion
Construction delays extend the period between contract and settlement, which creates both risks and opportunities. If your pre-approval has expired and you need to reapply, lenders will assess your application under their current policies. Lending criteria can tighten, particularly around what expenses they include in serviceability calculations or how they assess certain types of income.
We regularly see scenarios where a buyer's application would have been approved under the lender's policy at the time of contract but faces additional scrutiny when reassessed 24 months later. Sunset clauses in the contract give both you and the developer the right to walk away if construction extends beyond a certain date, typically 24 to 36 months. If the developer invokes the sunset clause, your deposit is returned, but you've lost the opportunity and any market value increase.
Staying Application-Ready Throughout Construction
Maintaining clean finances during the construction period protects your approval at settlement. Lenders review bank statements for the three months before settlement, looking for regular savings patterns, existing debts, and spending habits. Taking on new credit commitments like car loans or increasing credit card limits can reduce what you're approved to borrow.
Keep contact with your broker six months before the expected settlement date. This allows time to address any changes in your financial situation, switch lenders if needed, or explore alternatives like splitting the loan between fixed and variable portions once rates become clearer.
The Finance Clause Window You Cannot Afford to Miss
Most off-the-plan contracts include a finance clause giving you 30 to 45 days from contract signing to secure loan approval. If you cannot obtain approval within this window, you can exit the contract and recover your deposit. Once this period expires, you're committed to the purchase regardless of whether a lender approves your application at settlement.
This clause protects you from signing a contract you cannot finance, but it requires acting quickly. Gathering payslips, tax returns, and bank statements within days of signing the contract allows your broker to submit applications to multiple lenders and identify any issues before the clause expires. Missing this window means you're locked into a contract even if your circumstances change or lending criteria tighten during construction.
Getting Your Application Started
Off-the-plan purchases reward buyers who plan ahead but penalise those who assume everything will work itself out by settlement. If you're considering an off-the-plan property in Victoria, understanding how the timeline affects your finance options helps you protect your deposit and secure the stamp duty savings that make these properties appealing for first home buyers.
Call one of our team or book an appointment at a time that works for you. We'll review your situation, explain which low deposit options apply to off-the-plan properties, and keep your application on track through to settlement.
Frequently Asked Questions
Can I use the First Home Owner Grant for an off-the-plan property in Victoria?
Yes, the First Home Owner Grant and stamp duty concessions apply to off-the-plan properties in Victoria. The property value is assessed at contract signing, so if the property increases in value during construction, you still receive concessions based on the original contract price.
How long does pre-approval last for an off-the-plan purchase?
Pre-approval typically expires after three to six months, which is much shorter than most off-the-plan construction timelines. You'll need to reapply closer to settlement, and lenders will reassess your borrowing capacity using current policies and interest rates at that time.
What happens to my deposit if I can't get finance at settlement?
If you cannot secure finance approval after the finance clause period expires, you may forfeit your deposit. The finance clause typically gives you 30 to 45 days from contract signing to obtain loan approval and exit without penalty if unsuccessful.
Can I lock in an interest rate before the property is built?
No, you cannot lock in a fixed interest rate until shortly before settlement. If interest rates rise during construction, your borrowing capacity may decrease even if your income remains the same, potentially creating a gap between the purchase price and what lenders will approve.
Do the 5% deposit schemes work for off-the-plan properties?
Yes, both the 5% Deposit Scheme and Regional First Home Buyer Guarantee apply to off-the-plan properties, provided the property meets the scheme price caps and you meet eligibility requirements at settlement. These schemes help reduce the upfront deposit while the property is under construction.
