Off the Plan Valuation Shortfall: Why Finance Can Fall Through at Settlement

By Andrew Paterson

An off the plan valuation shortfall rarely gets talked about when you sign, yet it can cost you tens of thousands of dollars at settlement.

You sign a contract and the developer spends the next year or two building. At settlement your lender orders a fresh valuation, and it can come back lower than the price you agreed to pay.

That difference becomes your problem, and it usually has to be covered in cash. Below are the mechanics, a worked example and a checklist you can use well before settlement day.

This is general information only, not personal financial, credit, legal or tax advice. Figures are current as at September 2026 and change often, so get advice specific to your situation before acting.

Why off the plan finance can fall through at settlement

The core problem is timing. Your finance and your build run on very different clocks.

• Your finance clock: pre-approval is commonly valid for around 90 days, and some lenders allow up to six months. Either way, it can go out of date long before you settle.
• Your build clock: an off the plan apartment or townhouse project can take a year or more, and larger developments often take longer.

In practice, the sequence looks like this:

1. You sign the contract and pay your deposit.
2. A few months later, any pre-approval you had lapses.
3. The build runs its course, often with delays.
4. Close to settlement, the lender assesses a full application and orders a fresh valuation, taking you back through the stages of approval.

That final assessment is where deals come unstuck. It usually happens in one of two ways.

Trigger one: the valuation comes in short

Lenders calculate your maximum loan on the lower of the valuation or the contract price.

A softer market, cheaper final releases in the same building or weak comparable sales can all pull the valuation below your contract price. It is the same issue buyers face when a valuation falls short of the purchase price under the 5% Deposit Scheme.

Your loan is sized on the lower figure while you still owe the full contract price. The difference comes from your own pocket.

Trigger two: your borrowing capacity has changed

Even if the valuation holds, the lender re-tests your borrowing capacity against its policy at the time of settlement. It helps to understand how lenders arrive at that borrowing figure in the first place.

A few things can shift between signing and settling:

• Interest rates. APRA expects lenders to assess your repayments at least 3 percentage points above the loan rate. If rates have risen since you signed, your capacity may have shrunk.
• Your circumstances. A change of job, reduced hours, parental leave, a new car loan or a higher credit card limit can all reduce what a lender will offer.
• Lender policy. Lenders adjust their own credit rules over time, including how much debt they will allow relative to income.

APRA’s debt-to-income limit, which started on 1 February 2026, excludes loans to buy newly built dwellings. Individual lenders can still apply their own debt-to-income limits, so ask how yours treats your file.

Pre-approval is conditional, so treat it as a guide to your likely position at settlement.

A worked shortfall example

Say you sign a contract for an off the plan townhouse at $680,000 and pay a 10% deposit of $68,000. You plan to borrow 80% of the price, which usually avoids lenders mortgage insurance (LMI).

At settlement, the lender’s valuation comes in at $630,000, about 7% below the contract price.

Item	Amount
Contract price you still owe	$680,000
Settlement valuation	$630,000
Loan you expected (80% of $680,000)	$544,000
Maximum loan at 80% of the lower figure	$504,000
Extra cash needed because of the shortfall	$40,000
Balance due at settlement after your $68,000 deposit	$108,000 (instead of $68,000)

Stamp duty and other costs sit on top of those figures. The extra $40,000 may need to be found within weeks, so a shortfall quickly becomes a cash-flow issue.

Can LMI bridge the gap?

Sometimes. If your lender will go above 80% of the valuation, you may be able to cover some or all of the gap by borrowing more and paying LMI.

• LMI generally applies when you borrow more than 80% of the property’s value.
• The premium rises sharply as the loan-to-value ratio climbs, and it varies between lenders and insurers.
• Many lenders let you add the premium to the loan, which increases the amount you owe and the interest you pay.

Whether this suits you depends on your income, your buffer and how comfortable you are with a larger loan. Here is a refresher on how lenders mortgage insurance works, and it pays to model this option well before settlement.

Can you pull out if the bank valuation is short?

Generally, no. Most off the plan contracts are not subject to finance, so a low valuation or a reduced loan usually does not give you a right to walk away.

If you cannot settle, you risk:

• being in default under the contract
• losing your deposit
• a claim from the vendor for losses, such as a lower resale price and costs.

Rights linked to sunset clauses or plan changes are separate and come from the contract and legislation. Speak with your lawyer or conveyancer before you take any step.

Victorian protections for off the plan buyers

If you are buying in Victoria, the Sale of Land Act 1962 adds protections on top of a standard Victorian contract of sale.

• Sunset clauses: a vendor can only rescind under a sunset clause with your written consent or a Supreme Court order. They must give you at least 28 days’ written notice of the proposed rescission.
• Cooling off: residential buyers generally have three clear business days after signing to change their mind, with some exceptions and a small penalty.
• Plan amendments: if the vendor changes the plan of subdivision after you sign, they must notify you. If the change materially affects your lot, you generally have 14 days from the notice to rescind.

These rules protect you from vendor conduct and changes to what you bought. They do not cover a finance shortfall.

How stamp duty affects your cash to settle

Victoria’s temporary off the plan duty concession now covers contracts signed from 21 October 2024 and before 21 April 2027, according to the State Revenue Office.

• It applies to apartments, units and townhouses in a strata subdivision with common property.
• Any buyer can use it, including investors, with no price cap.
• It does not cover house-and-land packages outside a strata subdivision.

The concession lets you deduct construction costs incurred on or after the contract date from the dutiable value. That can lower your duty bill and your total cash to settle.

If you miss the temporary concession, the ongoing one may still apply to owner-occupiers and first home buyers. It is limited to properties valued at up to $550,000, or $750,000 for first home buyers, after construction costs are deducted.

First home buyers may also qualify for the duty exemption up to $600,000 and a concession up to $750,000. Your conveyancer can estimate the final figure, and the vendor usually provides the dutiable value about six months before settlement.

Pre-settlement checklist

The aim is to spot a gap while you still have time to act. Here is what we work through with clients in the months before settlement.

1. Get a feel for current values 3 to 6 months out. Check recent sales in the development and nearby, and ask your broker whether an early valuation is possible.
2. Re-check your borrowing capacity at current rates, including the lender’s assessment buffer.
3. Build a cash buffer for a possible shortfall on top of duty and settlement costs.
4. Ask about LMI options and whether your lender will go above 80% if the valuation is short.
5. Keep your genuine savings in place. Many lenders look for savings built up over at least three months, often around 5% of the price.
6. Hold off on new debt before settlement, including car loans, buy now pay later accounts and higher credit card limits.

Work out your own potential gap

Fill in your own figures to see how much cash a low valuation could cost you.

Step	Your figure
Contract price	$ ______
Possible settlement valuation	$ ______
Lender LVR (e.g. 80%)	______ %
Maximum loan (LVR x lower of the two figures above)	$ ______
Loan you originally expected	$ ______
Extra cash needed (expected loan minus maximum loan)	$ ______

If the last row worries you, running the numbers now gives you time to plan.

Why investors have more riding on settlement

The 2026-27 Federal Budget announced changes to negative gearing from 1 July 2027. For established residential property bought after Budget night, rental losses would only offset residential property income.

New builds, including off the plan purchases, are set to keep full negative gearing. That gives some investors an extra reason to make sure their off the plan purchase settles.

These are proposed changes and the detail may shift, so check the current position with your accountant before relying on them.

Planning ahead makes the difference

Off the plan can work well, and plenty of buyers settle without trouble.

Signing the contract does not lock in your finance. Your lender tests it again at the end against a fresh valuation, current rates and current lender policy.

Buyers who plan for a possible gap and keep a buffer have far more options. If you have signed, or are about to, we can stress-test your position now while there is still time to act.

General information only, current as at September 2026. Rates, lender policies, LMI premiums, stamp duty concessions and tax rules change often, so check current figures before relying on them.

Worked examples are simplified and lender policies differ. Speak with a licensed credit adviser, conveyancer and accountant about your circumstances.

Frequently asked questions

What happens if my off the plan valuation is lower than the contract price?

Your lender sizes the loan on the lower figure while you still owe the full price. Your options include funding the difference yourself or borrowing more with LMI if the lender allows it. Another lender may also value the property differently.

Can I pull out if the bank valuation is short?

Usually not, because most off the plan contracts are not subject to finance. Failing to settle can cost you your deposit and expose you to a claim from the vendor, so get legal advice early.

Does pre-approval guarantee my loan at settlement?

No. Pre-approval has an expiry date and conditions, and it will often lapse well before an off the plan property is finished. Your lender will assess a full application and a new valuation closer to settlement.

Can a different lender help if the valuation is low?

Sometimes. Lenders use different valuation panels and policies, so a second opinion can occasionally produce a better result, although there is no guarantee and switching takes time.

How long before settlement should I check my finance?

Start three to six months out, or as soon as the developer gives you an expected completion date. That gives you time to build savings, reduce debts or line up another lender.