A lot can change between signing a property contract and collecting the keys.
You might change jobs. Your salary could increase or fall. A couple buying together might move to one income. You could take out a car loan, start a family or face an unexpected expense that changes how much money you have available each month.
That matters when buying off the plan because settlement may be 12, 18 or even 24 months after you sign the contract.
The financial position that allowed you to secure the property today is not necessarily the financial position a lender will assess at settlement. Understanding that gap, and preparing for it, is an important part of buying off the plan.
When you buy an off-the-plan property, you agree to purchase the property before construction is complete.
You pay the required deposit according to your contract, then settle once the property is completed and the relevant settlement requirements are met.
If you need a home loan to complete the purchase, your ability to obtain that finance at settlement matters.
A pre-approval obtained when you first start looking for property generally does not guarantee that the same amount will be available much later. Lenders assess your circumstances when you apply for finance, and those circumstances can change during construction.
That is why buyers should think beyond one question:
Can I afford this property today?
There is another one that matters just as much:
What could my financial position look like when it is time to settle?
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Not every financial change is negative. A buyer may earn more, reduce debt or build additional savings during construction.
Others may experience changes that put more pressure on their borrowing position.
Changing employers does not automatically prevent someone from getting a home loan, but the timing and nature of the change can matter.
Moving into a higher-paying permanent position may strengthen your finances. Moving into casual work, becoming self-employed or being in a probationary period may be assessed differently by a lender.
If you are considering a significant career change before settlement, it is worth understanding how it could affect your future finance application before making the move.
A new car can feel completely unrelated to the apartment you are waiting to settle on.
To a lender, it is another financial commitment.
Car loans, personal loans, credit cards and other forms of debt can affect borrowing capacity because repayments reduce the income available to service a mortgage.
Even an unused credit card can matter because lenders may assess the available credit limit rather than simply looking at the current balance.
A buyer who qualified comfortably when signing a contract could therefore be in a different position after adding substantial new debt.
Starting or growing a family can change household finances considerably.
There may be a period of parental leave, a temporary reduction from two incomes to one, childcare expenses and higher household living costs.
None of this necessarily means buying becomes impossible. It does mean that couples buying ahead of a planned family change should consider how their borrowing position might look under a different household budget.
This is particularly relevant when settlement is still a year or two away.
Buying property with another person creates financial and legal commitments that can become complicated if the relationship changes before settlement.
If two people have signed a contract together, separating does not simply make the purchase obligation disappear.
Anyone purchasing jointly should understand the contract they are entering into and seek legal advice if their circumstances change.
Redundancy, reduced working hours, illness or a change in employment can affect the income available to service a future mortgage.
This is one reason a financial buffer matters.
Using every available dollar to reach the deposit may leave very little flexibility if circumstances change before settlement.
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A long construction period is not only a source of uncertainty. It can also give buyers time.
Over 12 to 24 months, you may receive a salary increase, progress in your career, pay down existing debt or build additional savings.
Someone with a car loan today may have significantly reduced the balance by settlement. A buyer with a relatively small cash buffer when signing may have had another 18 months to strengthen it.
This is one of the reasons off-the-plan buyers should treat construction as a period of financial preparation, rather than simply waiting for the building to be completed.
Your personal finances are only one side of the equation.
Lending conditions can change too.
Interest rates may be higher or lower by settlement. Lenders can change assessment policies. Your borrowing capacity can therefore move even if your salary and expenses remain relatively stable.
This is particularly important when buyers calculate affordability based on the maximum amount they believe they can borrow today.
A property that leaves some room within your budget gives you more flexibility than one that depends on every part of today's financial environment remaining unchanged.
Trying to predict exactly where rates will be in two years is difficult. Building some resilience into the purchase decision is more practical.
The market can also move while an off-the-plan property is under construction.
If comparable property values rise, the buyer has already agreed to the purchase price set out in the contract.
If values fall, however, another issue can emerge.
A lender may value the completed property differently from the contract price when assessing the home loan.
For example, imagine you agreed to purchase an apartment for $800,000, but the lender's valuation at settlement comes in lower. The amount the lender is prepared to finance may be based on its valuation rather than simply the amount written in the original contract.
That could mean the buyer needs to contribute more of their own funds to complete settlement.
This is one reason buyers should understand the risks of buying off the plan and avoid assuming that their future loan will automatically cover a particular percentage of the original purchase price.
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This is one of the more serious risks buyers need to understand before signing an off-the-plan contract.
A signed property contract creates legal obligations. Being unable to obtain the expected home loan at settlement does not necessarily release a buyer from those obligations.
What happens next depends on the contract and individual circumstances, which is why independent legal advice is important before signing and particularly important if your financial position changes materially during construction.
The best time to think about settlement risk is not a few weeks before the property is finished.
It is before you buy.
For eligible off-the-plan properties, Coposit changes how the deposit can be paid, not the buyer's eventual responsibility to settle.
Many participating properties can be secured from $10,000 upfront, although the required initial amount varies between projects. The remaining deposit is then built through weekly, interest-free instalments during construction.
This can give eligible buyers more time to build the deposit instead of needing the entire amount available when they secure the property.
The construction period can also provide time to prepare the broader financial position needed for settlement.
That might include:
Coposit does not guarantee future home loan approval or increase a buyer's borrowing capacity. Buyers still need to meet their finance and contractual obligations at settlement.
The advantage is in the deposit timeline, giving eligible buyers the opportunity to build the required deposit progressively while preparing for settlement.
One mistake off-the-plan buyers can make is treating finance as something to think about again when construction is almost finished.
A better approach is to keep checking your position throughout the construction period.
If your income changes, you take on debt, your household circumstances change or you are considering a major financial decision, think about how it could affect the property purchase you have already committed to.
As settlement gets closer, speak with your lender or mortgage broker early enough to understand your likely borrowing position and address potential issues before deadlines arrive.
Your future self should be part of the buying decision from day one.
An off-the-plan purchase gives you time between contract and settlement. Using that time to strengthen your financial position can be just as important as watching the building take shape.
Browse eligible off-the-plan developments on the Coposit projects page, download the Coposit app, or contact the Coposit team to explore participating projects and their deposit structures.
This article provides general information only and does not constitute financial, lending or legal advice. Lending criteria, valuations, borrowing capacity and contractual obligations vary by buyer, lender and property. Seek independent professional advice before entering into a property contract or making financial decisions that could affect an existing purchase.
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