Off-the-Plan Finance Approval. Why It Often Goes Wrong at Settlement

The single most common settlement-stage failure in off-the-plan purchases is not the contract. It is the gap between the lender's pre-approval at exchange and the lender's final approval at settlement. The buyer signed contracts on the basis of a pre-approval that has now expired. The lender values the completed unit at less than the contract price. The lending policy that applied 24 months ago has changed. The buyer's circumstances have changed. Or all four at once.

This article describes how the off-the-plan finance approval process works, why valuation shortfalls happen at settlement and what happens to the buyer if they do. It is a process explainer, not borrowing advice. Buyers in this situation should speak to a licensed mortgage broker, their lender or a financial adviser. AgentBridge is a property distribution business, not a financial advice business.

How Off-the-Plan Finance Differs from Established Property Finance

For an established property, the buyer obtains pre-approval, signs a contract subject to finance, the lender values the property, the lender issues unconditional approval, the buyer settles. The whole sequence runs in 30 to 60 days. The lender's valuation, the buyer's circumstances and the lender's policy all align around a single moment.

For an off-the-plan purchase, the sequence is broken in time. The buyer obtains pre-approval at exchange. The contract is typically unconditional on finance from the moment of exchange. The buyer is committed to settle 18 to 36 months later. At settlement, the lender must run a fresh assessment because the pre-approval has expired, the property now exists in physical form for the first time and a fresh valuation is required.

Three things can have moved during the contract gap. All three drive the bulk of off-the-plan settlement failures.

Why Valuations Come in Below Contract Price

The bank valuation at settlement is independent of the contract price. The valuer instructed by the lender values the completed unit as a brand-new property in the current market at settlement. Three structural factors can push that valuation below the original contract price.

The first is market movement. If apartment values in the relevant suburb have fallen between exchange and settlement (whether because of broader market conditions, oversupply of new stock or interest rate movements affecting buyer demand), the settlement valuation will reflect the lower current market.

The second is supply effects. In a project where many units in the same building are settling at the same time, valuers may take account of the volume of similar stock in the market. Where comparable units in the same building are being offered for resale at lower prices, the valuation can reflect that comparable evidence.

The third is the developer's pricing at exchange. Off-the-plan stock is typically priced based on the developer's view of where market values will sit at completion, which assumes growth across the contract gap. Where that growth does not materialise, the gap between contract price and settlement valuation can be material.

What a Valuation Shortfall Means for the Buyer

A simplified worked example illustrates the mechanic. This is not a recommendation, it is a description of what the numbers look like.

A buyer exchanges contracts on an apartment for $800,000 with a 10 per cent deposit ($80,000). The buyer has a pre-approval to borrow $640,000 (80 per cent of $800,000). Twenty-four months later at settlement, the lender's valuation comes in at $720,000. The lender's loan-to-value policy applies to the valuation, not the contract price. The lender will lend $576,000 (80 per cent of $720,000), not $640,000. The buyer must now find $144,000 in cash to settle ($800,000 contract price minus $576,000 lender funds minus $80,000 deposit already paid), against the $160,000 the buyer originally planned to bring ($80,000 deposit plus $80,000 cash gap).

The shortfall sits with the buyer. The contract obliges the buyer to pay the contract price at settlement regardless of valuation. The lender obliges the buyer to bring the additional equity to make up the shortfall. Neither party absorbs the gap.

If the buyer cannot bring the additional cash, the buyer faces default on the contract. The consequences of default include forfeiture of the deposit and potential liability for the developer's losses on resale, which can extend well beyond the deposit amount.

Why Pre-Approval at Exchange Is Not Enough

Off-the-plan buyers commonly rely on a pre-approval issued at exchange as evidence that finance will be available at settlement. Three reasons explain why pre-approval is not binding 24 months later.

Pre-approval expiry. Most lender pre-approvals are valid for 90 to 180 days. They expire long before an off-the-plan settlement.

Lending policy change. Bank lending policy moves with the regulatory environment and the lender's own risk appetite. Policy on responsible lending, debt-to-income ratios, expense verification, deposit sourcing and many other factors can change materially across a 24-month gap. The lender that approved the buyer at exchange may not approve the same buyer under current policy.

Buyer circumstance change. Income, employment, relationship status, dependents, existing debt, credit conduct and savings position can all shift across a long contract gap. The lender reassesses the buyer at settlement. Any deterioration since exchange affects the borrowing capacity.

What the Process Looks Like Around Settlement

The settlement-stage finance approval typically runs in this sequence.

Three to four months before the developer's expected practical completion, the buyer reactivates the lending application. This is the point at which a broker or lender begins the fresh assessment.

The lender orders a valuation once the property is sufficiently complete to be valued. This is often the first concrete data point on whether a shortfall exists.

The lender issues conditional approval based on the valuation, the buyer's current financials and the lender's current policy.

The buyer responds to any conditions, which can include additional documentation, deposit top-up or restructuring of existing debts.

The lender issues unconditional approval, typically 14 to 21 days before settlement.

Settlement occurs.

Where any of the steps fail (valuation shortfall, policy change, buyer circumstance change), the buyer has limited options to remediate within the contract timeframe. This is the structural risk of off-the-plan finance approval.

What Buyers Can Do to Manage the Risk

This article does not advise on borrowing strategy. The general process points below are mechanical, not strategic.

Buyers can monitor the project's progress and the local market through the contract gap. Buyers can maintain conservative borrowing capacity (debt levels, deposit savings) through the gap to absorb potential shortfalls. Buyers can engage a licensed mortgage broker early in the settlement window rather than at the last minute, to assess lender options and shortfall scenarios. Buyers should obtain independent financial advice on their specific borrowing position.

Decisions on which lender to use, how much to borrow, how to structure the loan and whether to take out lenders mortgage insurance are financial product decisions that sit outside this article. Speak to a mortgage broker or financial adviser.

What Sellers and Developers Should Know

Settlement failures on the buyer side are a real risk for developers as well. A buyer who cannot complete because of a valuation shortfall is in default. The developer must then resell the unit, potentially at the same lower current market value that caused the original shortfall.

Developers structuring off-the-plan releases should expect a base rate of settlement failures in any market. Developers who maintain strong buyer communication, who track buyer-side finance progress in the lead-up to settlement and who avoid stretching pricing at exchange in a market that may not support it at settlement tend to settle a higher proportion of contracts.

FAQ

Why do banks value off-the-plan units at settlement, not at exchange?

Banks value the property they are actually lending against, which is the completed unit at the date of settlement. At exchange the unit does not yet physically exist, so no settlement-grade valuation can be done.

Is a pre-approval issued at exchange binding at settlement?

No. Pre-approvals expire well before an off-the-plan settlement, lending policy can change in the interim and buyer circumstances can change. Fresh approval is required at settlement.

What is "lenders mortgage insurance" and how does it relate to a valuation shortfall?

Lenders mortgage insurance is insurance the lender takes out (paid by the buyer) where the loan-to-value ratio exceeds a lender threshold, commonly 80 per cent. Where a valuation shortfall pushes the buyer's loan-to-value above the threshold, the lender may require LMI to be added. Decisions about LMI are financial product decisions for the buyer and their adviser.

What happens if the buyer defaults at settlement?

Default consequences include forfeiture of the deposit, potential liability for the developer's losses on resale and potential further losses if the resale price is below the original contract price. Buyers facing default should obtain legal advice immediately.

Does the lender's valuation always match the buyer's view of market value?

No. Bank valuations are conservative by design. They reflect what the lender's panel valuer considers a defensible value for the lender's security purposes, not what the buyer or the market might be willing to pay in an open transaction.

Related Resources

• Buying Off the Plan in Australia. The Complete Process for 2026

About AgentBridge

AgentBridge is a property distribution business connecting developers and sellers with a national network of 80+ buyers agents across every Australian state. AgentBridge is not a financial services business and does not provide credit, lending, mortgage or financial product advice. Buyers assessing finance for an off-the-plan purchase should speak to a licensed mortgage broker, their lender or a financial adviser.

To request a confidential project assessment, speak to AgentBridge about your project.

Last reviewed: 22 May 2026.