There have been many arguments on whether or not it is good to buy “off the plan” properties. Some finance risks you should be willing to take if you want to buy off-the-plan are: changes in debt situation, risk of unemployment, market decline, credit profile taking a hit, career change, changes in lending policies and increasing interest rates.
Off the plan properties often come with a settlement that takes about 24 to 36 months. Between the contract signing of the purchase and the settlement, you may acquire other debts, including car loans, store cards and credit cards, which can affect your borrowing power and increase your risk profile in the eyes of your lender.
If your credit profile takes a hit during the time you have to settle your purchase, it could affect your chances of being approved for a standard loan. You may have to shop for an expensive mortgage just to settle the deal.
If you change positions, employers or industries, your lender will think you don’t have a proven track record in the field, constituting a higher risk. Banks could refuse to offer you finance.
There is also the risk of a higher loan to valuation (LVR) or a higher deposit required. In this case, you have to be prepared for a cash shortfall. Some investors have lost significant deposits or been sued because of this.
Lending policies can and will change anytime. Now it is also required to deposit 20 percent of the loan amount to settle their investment purchases. A year or two ago, this was not required. APRA has also prompted the increase of interest rates and this can increase your risk profile or reduce your borrowing capacity as well.
If you are job searching or your salary is reduced when the time comes that you have to settle your purchase, your borrowing capacity and ability to settle the property loan may be affected. A finance pre-approval for off-the-plan purchases is often valid for only 90 days.
There will always be a level of risk when investing in any property and investors are encouraged to be careful when considering an off the plan purchase, which comes at a premium price even after the usual discount.
What can you do?
It is important to seek professional advice in purchasing off-the-plan properties and navigating the different market conditions in Australia. Chan & Naylor does not sell properties so it remains unbiased. We would love to help you whether you are a beginner or seasoned property investor.
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Chan & Naylor Group has nationwide offices in Brisbane and Capalaba in Queensland, Melbourne and Moonee Ponds in Victoria, East Perth in Western Australia, and South West Sydney, Parramatta, Pymble, North Sydney, and Sydney in New South Wales.
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