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Everything you need to know about buying off the plan and securing finance

Everything you need to know about buying off the plan and securing finance

Aug 1, 2023 | Investment Property, Purchase, Self Menage Super Fund (SMSF)

There are many different ways to purchase property – and one of those ways actually involves committing to purchasing a property that doesn’t yet exist.

Buying real estate ‘off the plan’ means committing to purchasing a property that is still in the pre-construction or early construction phase, often long before a building or development project is completed. Many home owners and investors see buying off the plan as a good way to purchase a brand new property, however, just as with any investment, there are pros and cons to consider – so let’s have a look at them.

The benefits of purchasing property off the plan

  • Lower Purchase Price
    One of the main attractions of buying off the plan is the potential to secure the property at a lower price than it would be once construction is finished. Developers often offer discounts and incentives to early buyers which can result in significant savings.
  • Potential Capital Appreciation
    In a rising property marketing, purchasing off the plan can be a smart investment strategy. As property values will likely increase during the construction period, buyers may benefit from capital appreciation ever before they’ve settled on the property.
  • Customisation Opportunities
    This benefit particularly applies to home owners, but also provides investors with opportunities to boost their potential rental income. Purchasing off the plan often gives you the chance to customise certain aspects of the property, including selecting finishes, materials or layout preferences to suit their specific needs and tastes.
  • Delayed Payment
    When purchasing off the plan, buyers typically pay a deposit upfront and the rest of the purchase price upon completion. This extended settlement period provides you with extra time to save or secure finance.
  • Stamp Duty Savings
    As Stamp Duty is only payable on the land for off the plan purchases, you could be savings thousands of dollars on your purchase.
  • Deposit Options
    Whilst most buyers pay cash to secure their deposit, purchasing off the plan provides you with other more flexible deposit options to consider, including Bank Guarantees and Deposit Bonds. It’s always best to check with your property consultant as to what method of payment the develop is happy to accept.
  • Tax Advantages
    Being a new property, investors can claim depreciation which is a major tax incentive. This helps to reduce the ongoing costs of holding the property, allowing you to build a larger portfolio.

The disadvantages of purchasing property off the plan

  • Uncertainty
    One of the things that potentially buyers are often afraid of is the uncertainty of buying off the plan. As the property is yet to be constructed, buyers have to rely on floor plans, artist impressions and development promises as they’re not yet able to see the final product.
  • Construction Delays and Risks
    Construction projects can face unexpected delays due to various factors, such as weather, planning permits, development applications or financial issues. These delays may result in buyers having to wait longer for the property’s construction, impacting their plans.
  • Market Fluctuations
    Whilst a rising property market can bring capital appreciation, a declining market can have the opposite effect. If property values drop during the construction period, buyers may find themselves with a property worth less than they originally paid.
  • Changes in Financial Circumstances
    A buyer’s financial situation may change between time of purchase and completion, as well as general economic circumstances. This can make it harder to secure financing or meet the financial requirements during settlement.

How can you mitigate risk and increase your chances of securing finance for your off the plan purchase?

As mentioned above, economic or personal circumstances may change between the time of purchase and completion, however, below is what we always recommend our clients do to ensure they can reduce risk and have the best chance of securing finance for their property:

  • Increase your savings
    This will help to cover any unlikely shortfalls
  • Do not apply for any lines of credit during this time
    Don’t be tempted by credit card offers and avoid signing up for any additional lines of credit whilst waiting for your property to be completed. This could impact your borrowing capacity or credit rating.
  • Ensure all commitments are paid on time and up to date
    No lender likes to see late or outstanding payments, so make sure you’re paying all commitments on time.
  • Don’t change employment
    Some lenders can have issues with short term employment so it’s important that you chat to us should your employment change.
  • Maintain or reduce your living expenses
    Increasing your lifestyle costs may reduce your borrowing capacity so it’s important to keep an eye on your budget.

What should you consider when purchasing off the plan?

We’ve talked about the pros and cons, but what things do you need to consider when purchasing off the plan?

  • Research the developer
    You want to make sure that you thoroughly research the developer’s reputation, track record and completed projects prior to committing to an off-the-plan purchase as this will give you an idea of their creditability and their quality of work.
  • Understand the Contract
    Ensure you carefully review the purchase contract with the help of a legal professional. Pay close attention to clauses regarding potential changes in the property’s design, timeline and provisions for compensation in case of construction delays.
  • Finances
    It’s important that you know what you assess your financial situation and consider the risks associated with the investment before committing. When working with Sanford Finance, we’ll sit down to work out your goals, discuss potential risks and action plans and discuss contingency plans in case of unforeseen circumstances to ensure you’re not jumping into anything you’re not prepared for.
  • Location and Market Analysis
    Think about the location of the development and its potential for future growth. Consider things like the demand for similar properties in the area and evaluate the long term investment potential for the property.

What finance options are available during the construction phase?

Purchasing a property off the plan can be quite stressful and challenge even the best laid plans, however, our construction loans take a lot of stress out of the equation.

A construction loan most commonly has a progressive drawdown where you receive instalments of the loan at various stages of construction, rather than receive it all at once at the start.

This means that you generally only pay interest on the amount that is drawn down, as opposed to the entire loan amount.

A number of lenders also offer construction loans that are interest-only during the construction period, later reverting to a standard principal and interest loan once the build is complete.

Construction Loan Case Study:

Craig and Belinda are purchasing land for $300,000 in Adelaide and building a new home for $400,000 for a total value of $700,000. They are borrowing 95% or $665,000. Assuming an interest rate of 5.95%, the repayments required by Craig and Belinda during the build phase will look like this:

Current Loan Current Loan Current Loan Min. Monthly Repayment Required
Land Loan Nil $265,000 $1,314 IO
Deposit 5% $20,000 $285,000 $1,413 IO
Base 15% $60,000 $345,000 $1,710 IO
Frame 20% $80,000 $425,000 $2,107 IO
Enclosed 25% $100,000 $525,000 $2,603 IO
Fixing 20% $80,000 $605,000 $2,999 IO
Practical Completion 15% $60,000 $665,000 $3,966 P&I
Totals $400,000 $665,000  
IO = Interest Only P&I = Principal and Interest

In the above table we can see that the repayments steadily increase over time and are interest-only during the build phase. Once the final payment is made, a construction loan will generally convert to Principal and Interest repayments.

How do you get started?

Buying off the plan can be exciting and nerve wracking all at the same time, but we’re here to help. We’ve helped many clients secure their dream property or investment property off the plan and know what you should be looking for, what lenders are looking for and are here to help you navigate the off-the-plan market more confidently.

Ready to get started? Contact us today!

What is a Bridging Loan and When Should You Use It?

What is a Bridging Loan and When Should You Use It?

Mar 9, 2023 | Bridging Loan, Purchase, Uncategorized

Finding your dream home when you haven’t yet sold your previous home can be stressful – but that’s where bridging finance can help.

What is a Bridging Loan?

A bridging loan (or bridging finance) is short-term loan, generally lasting for up to 12 months or until the sale of your old property.

The idea is that the loan creates a financial “bridge”, allowing homeowners to purchase a property before selling their previous one – but there are many aspects to this style of loan that should be considered before signing.

How does a bridging loan work?

Here is a quick example to show you how the process may work

What is bridging finance and how does it work?


What are the benefits of a bridging loan?

  • Fast Approval
    Bridging loans are typically approved quickly, often within a few days, allowing you to secure your dream home faster.
  • Convenient
    A bridging loan allows you to look for and purchase a property without having to wait for your current home to sell. This means you could purchase the dream home you find unexpectedly – or secure a place to live without having to worry about renting between selling and purchasing etc.
  • Flexible Repayments
     The structure of your loan can vary, however, bridging loans typically offer flexible repayment terms, including interest-only repayments, lump sum repayments or the option to repay the loan once your old property has sold.
  • No Need for Temporary Accommodation
    If the timing is right with your bridging loan and your sale/purchase, it’s possible to avoid the cost and hassle of having to rent a home, living with friends or relatives or negotiating a longer (or shorter) settlement period to ensure you have somewhere to live.
  • Avoid Property Chains
    Bridging loans can help you avoid property chains, which can be complex and time-consuming, allowing you to move into your new home faster.
  • Flexibility
    Bridging loans provide flexibility and can be tailored to your unique financial situation, giving you peace of mind knowing that you have the financial support you need to purchase your dream home.


What are the downsides of a bridging loan?

  • Time limits12 months can go by very quickly and a time limit may mean you have to sell your old property at a lower than expected price just to get the sale finalised. If you don’t sell your home in the required time, you could be left with a large interest bill or risk the bank stepping in to sell your property.
  • The selling price risk
    Speaking of lower selling prices, if your property sells for less than expected you may be left with a larger ongoing loan amount – increasing repayments, interest etc and potentially causing financial difficulty.
  • Additional Costs
    Bridging finance may require two property valuations (your existing and new property) which could mean two valuation fees, as well as other fees and charges that come with the loan.
  • Termination Fees
    If your current lender doesn’t offer a bridging loan, you’ll need to switch to a lender who does offer these loans – potentially resulting in early exit fees from your current loan.
  • Interest and Interest Rates
    Interest is usually charged on a monthly basis, so the longer it takes to sell your property, the more interest your new loan will accrue. If you don’t sell your home within the bridging period, you will also typically be charged a higher rate.

How do I know if a bridging loan is right for me?

As everyone’s financial situation is different, it’s important to speak to a professional and do your own research before deciding if a bridging loan is right for you. At Sanford Finance, we’ll work with you to determine the right options for your unique financial situation – finding the right loan options, ensuring you are looking for properties you can afford and walking you from the first steps through to settlement and even refinancing in the future to ensure you always have the right loan for your needs.

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Is your will still relevant?

Is your will still relevant?

Oct 4, 2022 | Insurance

We’ve teamed up with our friends at Windmill Financial Planning for these articles to help make sure your finances are secure both now and in the future.

Many of our best laid plans rarely follow through exactly as we might have hoped. However, it’s
another story when it comes to planning for what happens after we’ve left this planet. Our ideas
about who will benefit from our estate could potentially change often during our lifetime.
Estate planning ensures that when we die, our assets can be passed promptly and tax-effectively to
the people we love or to the charities we support.

Just like life, an estate plan is not static. As life changes, a will should be adjusted to ensure it
remains relevant. There are many events that can trigger a need to review an estate plan, for
instance:

  • Marriage – which revokes the wills made by the spouses when single;
  • Divorce – which revokes any gifts made under a will to the ex-spouse;
  • Changes in the family such as births and deaths;
  • Changes in relationships such as children entering or leaving de-facto arrangements;
  • Death of a person who plays a key part in the estate plan such as an executor or trustee.

Here are some examples of when a life changed and the estate plan did not keep up.

Who gets the house?

Joel was a young executive married to Jane, a corporate lawyer. They were both busy and successful
in their careers and had no children. They drifted apart and Joel started a new relationship with
Sophie. They rented an apartment together and six months later were delighted to discover Sophie
was expecting their first child. Joel was finalising an important deal and would “get around to
arranging things” as soon as the ink had dried on the contract.

That never happened because he was killed in a car accident driving home from the office. Joel and
Jane were still married and as they had owned their house as joint tenants, it passed automatically
to her. The trustees of Joel’s super fund split his super between Sophie and Jane. Sophie was left to
raise their child on her own without the financial support Joel would have wanted.

Who controls the money?

Trevor and Jennifer had planned their retirement meticulously including an estate plan. Their wills
provided for a testamentary trust to be set up when they died. Trevor’s older brother agreed to be
the trustee because he knew their family and understood what Trevor and Jennifer wanted. Their
intention was that the trust would support their grandchildren through their education and
establishment of their lives.

A few years later, Trevor passed away after a brief illness and Jennifer followed shortly afterwards.
By this time, Trevor’s brother was in a nursing home suffering dementia and therefore could not
fulfil the trustee’s obligations. The family had to approach the courts to appoint a replacement
which meant the trust might not have been administered in the way Trevor and Jennifer had earlier
wished.

Who supports Alex?

Mandy had brought up three children on a tight budget since divorcing their father. She arranged
her finances well and took out insurance to ensure her children would be supported if she died or could not work. Mandy’s will appointed her sister, Penny, as guardian of her children and executor
of her estate.

Unfortunately, Penny became seriously ill and Mandy agreed to look after Penny’s son Alex, as well
as her own family. When Penny unexpectedly died Alex was left some money from her estate. When
Mandy was revising her financial plans to cope with these events, her financial adviser
recommended she apply to become Alex’ guardian, increase her insurance cover, appoint a new
guardian for the children and include Alex in her will.

These are common scenarios, so if your family situation or ideas change, be sure to ask for
professional guidance in updating your estate plan accordingly.

How your daily spending is impacting your borrowing power

How your daily spending is impacting your borrowing power

Oct 4, 2022 | Borrowing Power

Your morning coffee, a quick lunch with your colleagues, ingredients for dinner, your Netflix subscription… ordinary day-to-day expenses, but did you know that these can considerably reduce the amount you are eligible to borrow, even if you are a high income earner?

If you’re planning to buy a home, now might be the time to Spring clean your expenses and set yourself a weekly budget and here’s why:

Why do lenders care about living expenses?

Mortgage brokers and lenders are required to meet ‘responsible lending’ guidelines under the National Consumer Credit Protection Act (NCCP). These guidelines are designed to ensure that a borrower can afford to make the repayments on their loan without suffering ‘substantial hardship’.

This means, by law, all mortgage brokers and lenders must ensure that you have plenty of money left over from your income to repay your loan after you have covered your regular financial commitments.

What are living expenses?

A living expense is defined as anything that you spend your money on. Your morning coffee, Netflix subscription, monthly dinner out with friends and gym membership all count – even if you don’t see them as essential or could easily live without them.

When applying for a loan, we have to perform a thorough living expense and income assessment which determines your true financial position – and all of these expenses are included.

According to a 2018 survey by UBank, 86% of Australians don’t know how much money they spend every month on their living expenses – and those small expenses can quickly add up.

Without tracking your purchases, it’s easy to spend more than you earn without even realising – especially if you use a credit card.

But what if I plan to change my spending habits?

You might think “once I buy a property I’ll….”, but to most lenders, all that matters is how you’re spending money now.

Tips for controlling your living expenses

In order to control your living expenses, you first need to know where your money is going.

ASIC have a free MoneySmart Budget Planner that is a great place to start and it can be downloaded here. Another great tool from ASIC is the MoneySmart TrackMySpend app which helps you to record your weekly household budget, nominate spending limits, separate ‘needs’ from ‘wants’ and kickstart your savings goals.

How do we perform a living expenses assessment?

As mentioned, as part of the borrowing process, we need to conduct a thorough living expenses assessment. To do this, we’ll provide you with a Needs Analysis Questionnaire to help you work out your living expenses.

These expenses are divided into simple categories, including:

  • Childcare
    Including formal day care, nannies and occasional babysitters or childminding services.
  • Personal Care
    Clothing, footwear, cosmetics, personal hygiene products, hairdressing, manicures, massages etc.
  • Education
    All educational costs/fees for the borrower and any dependents, including books, uniforms, equipment and excursions.
  • Groceries
    This includes meat, fruit, vegetables and anything you might buy from a supermarket, including cleaning products.
  • Insurance
    This includes health, home, car, life, pet and all other insurances you may have.
  • Medical
    Doctors visits, dental care, pharmaceutical prescriptions, optical etc.
  • Utilities and Home Expenses
    Gas, water, electricity, rates, taxes, levies and any other costs for running your own home.
  • Entertainment
    Movie tickets, take away food, club memberships, gifts, holidays, hobbies and all recreational expenses.
  • Connections
    Includes expenses such as mobile phone plans, internet, home phones, magazine subscriptions, streaming services etc.
  • Transport
    Including personal vehicle expenses like petrol, tolls, insurance and car registration as well as public transport, car parking, car servicing and maintenance.
  • Rent
    This is for rent on a property that you live, board (if you are living with your parents or renting a room) or similar housing costs.
    Note: If you are buying a home you intend to occupy, rental expenses are not included as part of your living expenses assessment.
  • Investment Property Expenses
    Including any costs you are responsible for paying, such as council rates, insurance, property management fees, taxes and levies, body corporate and strata fees, maintenance etc.
  • Other
    All other expenses that do not fit into the above categories.

When should I cut back on expenses?

If you’re planning on purchasing a property, the best time to start is now. Regardless of whether you’re purchasing a home for yourself or an investment, it’s important to know how much you’re spending and where.

Remember that a lender will only give you a loan for an amount you can afford to repay, so cutting back on your everyday spending could give you increased borrowing power and will maximise the chances of your loan getting approved the first time.

Where do I start?

We are happy to run through your living expenses and help you find ways to budget and increase your borrowing power. Just contact our team via the website here, or give us a call on (02) 9095 6888.

8 Christmas Spending Tips to Avoid a Financial Hangover in the New Year

8 Christmas Spending Tips to Avoid a Financial Hangover in the New Year

Dec 1, 2021 | Uncategorized

It has been a year – and with Christmas and the silly season upon us, it’s tempting to throw caution to the wind and go all out – but do you really want to end up with a financial hangover when those credit card bills roll around?

We want to make it easy for you to enjoy the Christmas season without ending up with a financial hangover in the New Year with 8 easy to follow spending tips.

  • Set a Budget for Christmas   We’re starting with the b-word because we know it’s the least popular – but there’s a reason why budgets work.

    When you have a budget in place, you’re more aware of how much you’re spending and what you’re spending money on so you can make better decisions.

    A lack of planning is your savings account’s worst enemy, so draw up a budget for your Christmas spending. This should include everything from the gifts under the tree to the food, drinks and money you’ll spend socialising during the silly season.

    Once you’ve worked out how much you can afford to spend, you have more freedom to enjoy all of the things the Christmas season brings.

    Pro Tip! If you’re the type of person who leaves for a night out with a strict budget in mind, but tends to keep tapping that credit card round after round, do yourself a favour and leave the cards at home and bring cash instead.
  • Pay off Credit Cards Quickly   If you use a credit card to finance your Christmas spending, be sure to pay off the balance in full when the bill arrives in the New Year.

    Credit cards are generally an expensive way to borrow money so it’s important that you’re not being lumped with extra interest or fees.

    If you’re taking advantage of a credit card offer, make sure you read the fine print and know the end dates so you’re not stuck with a nasty surprise in the new year.

  • Keep a Running Total   You’ve got a budget, but it’s easy to set and forget.
    Track your expenses as you go so you don’t end up overspending and ruining your budget for the month (or for the months after!).

    It could be as simple as keeping a running total in the notes section of your phone or using a budgeting app.

  • Try and Reduce Spending in Other Areas   Is there anything you can spend less on in December to make up for spending on gifts or socialising? Have a look at your budget and see what areas you could be spending less in.

    Pro Tip! Get ready for Christmas spending in advance by adding a Christmas “sinking fund” to your monthly budget. By putting aside some money each month, you know exactly how much you have to spend and don’t have to sacrifice other spending in December.

  • Make More Money   Wait a minute, stay with us!

    Whilst it would be great it all of our bosses gave us some extra Christmas cash, there are other ways you can make more money for the Christmas season.

    Try decluttering at home and selling some unwanted items on Facebook marketplace – or maybe you can use some time on your weekends to do a few AirTasker tasks or pick up a few Uber Eats orders.

    Love pets? Maybe there’s someone in your area looking for a pet sitter over the Christmas break.

  • Prioritise Your Existing Financial Commitments   Don’t forget about your existing financial commitments. Your loan still needs to be paid, utility bills still come in and credit card payments will still be due.

    Avoid splashing out on Christmas spending at the expense of your existing financial obligations.

  • Try Not to Dip Into Your Savings   It can be tempting to dip into your savings to afford the Christmas you’ve been dreaming of, but whilst it might seem like a good idea now, it can actually set you back in the new year.

    If you can avoid it, try to leave your savings or emergency fund intact for when you really need it.

  • Spread Out Your Spending   Instead of leaving all of your Christmas shopping to the last minute, spread your Christmas spending across the weeks leading up to Christmas to lessen the financial strain.

    Try Christmas shopping earlier to take advantage of different sale offers like Black Friday that could save you hundreds. Planning your Christmas menu in advance also allows you to shop the specials in the weeks leading up to Christmas, saving you more money in the long run.