Smart Ways to Approach an Off-the-Plan Investment Loan

An off-the-plan purchase locks in the price today, but the lender decides your loan at settlement. That gap is where most of the risk sits, so your finance plan needs to cover it from day one.

If you are a Cronulla investor weighing up an apartment that is yet to be built, this article covers what to settle before you sign the contract. We will look at how lenders assess the loan, how the repayments work, and what the tax rules mean for a new build.

How Does an Investment Loan Work for an Off-the-Plan Purchase?

With an off-the-plan purchase you pay a deposit when you sign, and the lender's loan is usually drawn at settlement, once the building is complete. Your finances are then assessed against the lender's rules at that point, not just when you signed.

That means you should ask your broker three things before committing. How long does an approval last? How will the lender value the finished property? What happens if that value comes in under the contract price? Lenders differ on these points, so get the answers in writing where you can.

If your total borrowing goes above 80 per cent of the property value, lenders mortgage insurance (LMI) is generally required. The premium is paid by you. A larger deposit reduces that cost, which is a trade-off against keeping cash available for other uses.

How Much Can You Borrow for an Investment Property?

Your borrowing capacity depends on your income, debts and expenses, and on how the lender counts the rent from the new property. Our borrowing capacity page explains the main factors.

APRA requires banks and other authorised deposit-taking institutions to test new borrowers at an interest rate at least 3.0 percentage points above the loan rate. At an illustrative rate of 6.75% p.a., that is a test rate of 9.75% p.a. APRA's guidance expects prudent lenders to apply a minimum 20 per cent haircut to expected rent, so no more than 80 per cent is counted. Each lender sets its own rental policy.

Off-the-plan buyers should know that lenders generally place less reliance on rental appraisals than on actual rent received. Your property does not exist yet, so the rent figure is an estimate. Plan on the assumption that the lender will be cautious with it.

One point works in your favour. APRA's debt-to-income limit on bank lending excludes loans for the purchase or construction of new dwellings. Each bank still sets its own credit policy, so this does not guarantee approval. It is worth discussing with your broker when comparing lenders.

Interest Only or Principal and Interest: A Worked Example

Interest-only repayments lower your cost while you wait for the property to earn rent, but they do not reduce your debt and they do not increase how much you can borrow. Consider an investor with a $600,000 loan at an illustrative 6.75% p.a.

On interest only, the repayment is about $3,375 a month. On principal and interest over 30 years, it is about $3,892 a month. Now suppose the investor takes five years interest only and then switches. The repayment becomes about $4,145 a month, because the full balance must now be paid off over the remaining 25 years.

The outcome is a lower monthly cost for five years, followed by a repayment about $770 a month higher than the interest-only repayment, and about $253 a month higher than the 30-year principal and interest repayment. The balance is still $600,000 at that point. Lenders also assess interest-only loans on the principal and interest repayment over the remaining term, so the interest-only feature will not stretch your limit. You can test your own numbers in our mortgage repayment calculator.

Negative Gearing and Capital Gains Tax on a New Build

Losses from eligible new builds acquired after 12 May 2026 can continue to be deducted against all your income, including salary. Whether a particular apartment qualifies depends on the legal definition of an eligible new build, so check this with your accountant before you sign.

Eligible new builds include dwellings on previously vacant land, and dwellings that replace existing ones where the number of dwellings increases. A new build that has been occupied for more than 12 months before sale loses this treatment for the next investor.

For capital gains, from 1 July 2027 the 50 per cent discount is replaced by cost base indexation and a 30 per cent minimum tax rate on real gains. For eligible new builds, investors may elect either approach. The right choice depends on your circumstances, so speak with your accountant.

Only the interest portion of your repayment is deductible. The principal portion is not. Other holding costs, such as insurance, council rates and property management fees, are deductible while the property is rented or genuinely available for rent. A deduction reduces your cost but never covers it in full, so the property still needs to stand up on its cash flow.

Holding Costs to Build Into Your Numbers

Your budget needs to cover more than the loan repayment. Body corporate levies, insurance, management fees and vacancy periods all reduce your net return, and rent will not start until the building is complete and tenanted.

Build a cash buffer for the months between settlement and the first tenant. Then run the numbers at a higher interest rate to see whether you could still hold the property comfortably. If the figures only work in the most optimistic case, the purchase is too tight.

If you already own a home or other property, your existing loans form part of the assessment. A loan health check before you apply can show whether refinancing or restructuring would improve your position first. Refinancing has costs, such as discharge and valuation fees, so it needs to pay for itself.

Solara Financial can compare investment loans from lenders across Australia and structure the finance around your settlement date. Call one of our team or book an appointment at a time that works for you, and we will map out the numbers before you sign the contract.

Frequently Asked Questions