What to know when buying off-the-plan in Mascot

Buying off-the-plan means you're committing to a property before it exists.

That changes everything about how your home loan works. The deposit structure is different. The approval process is different. And the financial position you're in when you sign the contract might look very different from your position when the property actually settles 12 to 24 months later.

Mascot attracts off-the-plan buyers because of its proximity to the airport precinct, the rail connection, and the fact that established housing stock is limited. Most new properties here are apartments in mid-rise developments, which means understanding what lenders will and won't finance becomes particularly important.

How off-the-plan home loan pre-approval actually works

Pre-approval for an off-the-plan purchase works differently to a standard purchase because the property doesn't exist yet and your financial circumstances could change before settlement. Most lenders will give you conditional approval based on your current income, savings, and the contract terms, but that approval typically expires after three to six months.

Consider a buyer who gets pre-approval in March for a Mascot apartment settling in 18 months. By September, their pre-approval has expired. They'll need to reapply closer to settlement, and if their income has dropped, their employment has changed, or lending criteria have tightened, they might not get the same loan amount they were originally promised. This creates a risk that you've already paid a 10% deposit on a property you can't actually finance.

To manage this, some buyers work with a broker to structure their finances in advance. That might mean reducing personal loan debt, avoiding car finance commitments during the construction period, or maintaining consistent employment in the same role. In our experience, buyers who monitor their borrowing capacity throughout the construction phase are less likely to face funding problems at settlement.

The deposit structure you'll be working with

Off-the-plan contracts usually require a 10% deposit paid in stages: often 5% on exchange and the remaining 5% within three to six months. This deposit is held in a trust account until settlement, which offers some protection if the developer fails to complete the project, but it also means your money is tied up for an extended period without building any equity.

If you're using the First Home Guarantee or another low-deposit scheme, the 10% contract deposit still applies. You'll need to save that full amount even though your eventual loan might only require a 5% deposit at settlement. The difference is that you won't need to pay Lenders Mortgage Insurance (LMI) when the loan settles, which can save several thousand dollars on an apartment in the $650,000 to $750,000 range typical for Mascot.

Some contracts include a sunset clause, which allows either party to walk away if the development isn't completed by a certain date. If the developer cancels under this clause, you get your deposit back, but you've also lost the opportunity cost of having that money tied up for potentially two years. If you cancel, you usually forfeit the deposit unless the developer is in breach.

What lenders look at when valuing off-the-plan properties

Lenders will order a valuation before approving your loan, but because the property doesn't exist yet, the valuer is working from floor plans, finishes schedules, and comparable sales in the area. This creates a risk that the valuation comes in lower than the contract price, especially if the market softens between contract and settlement.

Mascot has seen periodic oversupply in the apartment market, particularly when multiple developments complete around the same time. If a valuation comes in 5% below your contract price on a $700,000 apartment, that's a $35,000 shortfall. The lender will only finance based on the lower valuation, which means you'll need to cover the gap from your own savings or negotiate with the developer to reduce the price.

Another factor is the loan to value ratio (LVR). If you're borrowing 90% based on a contract price of $700,000, but the valuation comes in at $665,000, your LVR has effectively increased to 95%. Some lenders won't approve loans above 90% LVR for off-the-plan apartments, which means you could be declined even though you met the criteria when you first applied.

Fixed rate versus variable rate decisions for long settlement periods

You can't lock in a fixed interest rate until settlement is close, usually within three to six months. That means if you sign a contract today for a property settling in 18 months, you'll be taking whatever the fixed rates are at that future point, not the rates available now.

This matters when interest rates are rising. As an example, a buyer who signed an off-the-plan contract in Mascot in early 2022 might have assumed they'd get a fixed rate below 3%. By the time their property settled in 2023, fixed rates had moved closer to 6%. On a $600,000 loan, that's the difference between roughly $2,500 per month and $3,600 per month in repayments.

Some buyers choose a variable rate at settlement to retain flexibility, particularly if they're planning to use an offset account to park savings and reduce the interest they pay. Others prefer the certainty of a fixed interest rate home loan even if it means accepting whatever the market offers at settlement. There's no universal answer, but the decision should be made with full awareness of what rates might look like in 12 to 24 months, not what they look like today.

Practical steps before you sign an off-the-plan contract

Before you commit, request a copy of the development approval and check the completion timeline. Delays are common, and a six-month delay can mean six additional months of rent while you wait for settlement. It can also mean reapplying for finance if your original pre-approval has expired.

Ask whether the developer is offering any deposit guarantees or financing assistance. Some developers work with specific lenders to offer rate discounts or LMI waivers, though these deals usually come with conditions like staying with that lender for a minimum period.

Get independent legal advice on the contract terms, particularly around sunset clauses, variation clauses that allow the developer to change finishes or layouts, and your rights if the property is completed but doesn't match what was promised. A conveyancer familiar with off-the-plan purchases in the Mascot area will know what to look for and which developers have a reliable track record.

Finally, speak with a broker who can explain how your current financial position translates into borrowing capacity and what might affect that between now and settlement. Off-the-plan purchases require more planning than buying an existing property, but that planning reduces the chance of problems when it's time to finalise your loan and take ownership.

If you're considering an off-the-plan purchase in Mascot or want to understand what your borrowing position looks like ahead of settlement, call one of our team or book an appointment at a time that works for you. We'll walk through the timeline, the deposit structure, and what you'll need to have in place when the property is ready to settle.

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