A deposit of 10% written on a contract in 2021 often landed in a trust account while the borrower’s pre-approval was anchored to a cash rate of 0.10%. Today that same borrower sits across from a broker with a cash rate at 4.35% and an APRA-mandated serviceability buffer that adds another 3.0 percentage points to the assessment rate. The gap is not trivial: a $650,000 apartment purchased off-the-plan with a 5% deposit can easily require an extra $90,000 in income to satisfy the same lender that approved an identical loan three years earlier. At the same time, construction delays are stretching beyond the sunset date in many high-rise projects, and the developer’s decision to trigger that clause is no longer a theoretical risk but a live threat in postcodes from Melbourne’s inner west to Sydney’s south-west growth corridors.
The convergence of elevated material costs, builder insolvencies—Porter Davis and Lloyd Group being the most visible—and the Reserve Bank’s most aggressive tightening cycle in a generation has rewritten the arithmetic of off-the-plan settlement. Buyers who handed over cash deposits must now confront a two-front problem: their loan eligibility has eroded, and the property’s valuation at completion may sit below the contract price. Against that backdrop, understanding exactly how deposit structures work, how major and non-bank lenders value an unfinished dwelling, and what legal protection exists when a developer tears up the sales contract has become an urgent part of any first-home-buyer decision.
The real deposit picture — more than a 5% or 10% handshake
Exchange deposit conventions
Most off-the-plan contracts in New South Wales, Victoria and Queensland specify an exchange deposit of 10% of the purchase price. For a $720,000 apartment, that is $72,000 paid to the developer’s trust account within 28 days of signing. Some developers, particularly on luxury stock or in postcodes with heavy investor concentration, ask for 20%, while smaller boutique projects may accept 5% if the buyer can demonstrate strong pre-approval. That money is held in a controlled trust—regulated by the relevant state’s property agent legislation—and generally cannot be touched until settlement, unless the contract is terminated under a valid sunset clause or the buyer defaults.
Deposit bonds as a cash-flow tool
Buyers who are asset-rich but cash-poor routinely use a deposit bond to satisfy the developer’s requirement without transferring liquid funds. The bond costs between 1.5% and 2.5% of the deposit amount for a 12-month term and is issued by an insurer such as QBE or a specialist like Deposit Power. Lenders, however, do not treat a deposit bond as equity; they still calculate the borrower’s genuine savings contribution separately. Westpac’s credit policy, for instance, counts the bond only as the required deposit while demanding a 5% genuine savings track record for loans above 80% LVR, unless the purchaser qualifies for the First Home Loan Deposit Scheme (administered by Housing Australia).
Trust account protection is not absolute
The deposit in a trust is protected from a developer’s insolvency only while the project’s building works have not progressed past a certain stage. Under standard Law Society conditions and the Conveyancing (Sale of Land) Regulation 2017 (NSW), once the developer has completed 50% of the total construction cost and the purchaser has been served with a valid notice, the deposit can be released to fund works. If the builder collapses after that release, the buyer becomes an unsecured creditor. The collapse of Ralan Group in 2019, where $277 million in buyer deposits was released early against zero security, remains a cautionary reference point that lending specialists cite in every due-diligence session.
How lenders value an incomplete dwelling and size the loan
Current LVR caps across lender types
Banks set maximum loan-to-valuation ratios on off-the-plan purchases based on the lower of the contract price and the valuation at completion. For a standard apartment in a multi-storey development, the major four—CBA, Westpac, NAB and ANZ—commonly cap lending at 80% LVR if the security is acceptable under their postcode and size policies. In high-density postcodes such as Melbourne’s 3000 or Sydney’s 2000, Westpac limits LVR to 70% for apartments smaller than 50 square metres internally, and NAB imposes a minimum 40-square-metre internal floor area for any exposure above 60% LVR. Non-bank lenders such as La Trobe Financial and RESIMAC will stretch to 80% LVR on smaller dwellings but price the risk with a margin 100–150 basis points above a prime owner-occupier rate.
Because the valuation is done at practical completion—not at contract exchange—a buyer who signed at the peak of a stimulus-fuelled market can face a valuation shortfall. A valuation of $680,000 on a $750,000 contract means the lender’s 80% LVR advance is capped at $544,000, leaving the buyer to find $206,000 plus stamp duty from savings, a second mortgage, or family guarantee.
The 3% serviceability buffer and DTI ceilings
APRA wrote to all authorised deposit-taking institutions on 6 October 2021 requiring them to assess new residential lending with a serviceability buffer of at least 3.0 percentage points above the loan product rate. While the cash rate was 0.10% at the time, the buffer’s bite became painful once variable rates climbed above 6.00% p.a. A borrower today with a $500,000 loan priced at 6.19% p.a. is assessed at 9.19% p.a., generating a monthly repayment of $4,170 in the lender’s net-income-surplus calculation. That is $870 a month more than the repayment at the actual product rate, compressing borrowing capacity by roughly 20% relative to the old 2.5% buffer.
Simultaneously, the four majors apply hard debt-to-income caps. CBA’s internal limit sits at a DTI of 7 times for most borrowers, with exceptions only where strong other financials exist. On a combined household income of $150,000, the maximum total debt the bank will accept is $1.05 million. If the borrower already carries a $450,000 existing mortgage, the off-the-plan purchase must fit inside a $600,000 residual ceiling, including any outstanding HELP debt, credit card limits and car leases.
The valuation lag at settlement
Valuers instructed by lenders at completion will apply a “fire-sale” assumption if a significant volume of identical stock is settling simultaneously, which is common in large towers. That discount can reach 8–10% relative to the exchange-date valuation. Brokers who specialise in off-the-plan transactions routinely order a “kerbside” valuation six months before the anticipated completion, so the borrower has time to source gap funds or negotiate a lower price. If the lender valuation comes in low, the contract LVR rises, and if it pushes above 80%, LMI becomes mandatory and the LMI provider may decline cover if the high-density exposure is already at maximum capacity.
Sunset clauses — from buyer safeguard to developer escape valve
What a sunset clause actually triggers
A sunset clause in an off-the-plan contract is a contractual right for either party to terminate the agreement if the development has not reached a defined stage—usually registration of the plan of subdivision—by a specified date. The original policy rationale was to protect buyers from being locked into a contract indefinitely while the developer failed to progress. In practice, a developer who signed pre-sales at $550,000 in 2020 may find the same apartments now worth $750,000. By deliberately slowing construction or invoking the sunset date, the developer can rescind, refund only the deposit (sometimes without interest) and re-list the apartments at the higher market price.
The legislative response in NSW and Victoria
New South Wales amended the Conveyancing (Sale of Land) Regulation 2017 in late 2015, requiring developers to obtain either a buyer’s consent or a Supreme Court order before terminating under sunset. That change followed the high-profile “Sunset Boulevard” cases where buyers in large projects were stripped of capital gains. Victoria initially followed with the Sale of Land Amendment Act 2019 (Vic), but enforcement gaps persisted. The Sale of Land Amendment Act 2023 (Vic), effective 1 March 2024, closed those gaps by allowing the buyer to claim the difference between the contract price and the market value at the date of termination if the developer invokes the sunset clause without reasonable cause. This is a substantive financial remedy: if the original contract was $640,000 and the market value is $790,000, the buyer can recover $150,000 from the developer, transforming the risk calculus.
Real-world cost of a sunset termination beyond the deposit
Even if the deposit is refunded, the buyer has lost the opportunity to purchase at a lower price. In most states where compensation rights did not exist before 2024, the capital loss was unrecoverable. The buyer also forfeits any stamp duty concessions that may have been locked in at the date of exchange. Queensland’s first-home concession, for instance, requires settlement to occur; if the contract is rescinded, the concession is lost and the buyer would need to reapply for a future purchase at the then applicable thresholds, which may be lower due to property price growth. Furthermore, pre-approval letters that were valid at the time of the original contract expire, forcing the buyer into a fresh application at a higher rate buffer.
Lender policies when a developer pulls the sunset trigger
Big-four reaction to contract rescission
The major banks treat a sunset termination as a full unwind of the transaction. All conditional approvals are voided, and the borrower must lodge a new application from scratch. CBA’s credit guide explicitly states that if a contract of sale is rescinded for any reason, the home loan application is automatically withdrawn. Westpac applies the same principle but will expedite a new application if the borrower can secure an alternative property within 90 days, preserving the original valuation fee credit. The difficulty arises when the buyer, now without a property, cannot meet the 3% buffer test on a more expensive replacement dwelling because rates and income have not moved in their favour.
If the developer offers a new contract at a higher price to the same buyer—sometimes as a “first right of refusal”—the major banks will treat the transaction as a new purchase. Any capitalised LMI on the original loan is lost, and a fresh LMI premium applies, which can add $12,000–$18,000 on an 85% LVR loan of $600,000.
Non-bank flexibility and its trade-offs
Non-bank lenders, particularly those that portfolio manage their own loans without a fixed APRA mandate on serviceability (they still follow APRA’s guidance but may use discretions), can occasionally offer a pathway. Latitude Financial’s white-label product, for example, can assess serviceability at the actual rate plus a 1% margin instead of 3%, if the borrower has strong asset backing and a clean credit file. However, such loans carry rates around 7.99% p.a. variable, and the LVR ceiling is limited to 70% on off-the-plan apartments built by a non-tier-one developer. For a borrower earning $130,000 with one dependent, that lower assessment rate can increase borrowing capacity by $85,000 relative to the major-bank calculation, but the higher interest cost over a five-year horizon strips away almost all of that gain unless the property is held only until construction premiums are realised.
Four immediate steps every off-the-plan buyer should execute now
1. Obtain a “completion-val” six months out. Instruct a valuer accredited with the lender’s panel to provide a desktop estimate of the likely completion value. Share the report with your broker to calculate the exact LVR at settlement. If the valuation indicates a gap, you have time to negotiate a price reduction with the developer—difficult but possible in a soft market—or arrange gap funding.
2. Audit your pre-approval against the current buffer. Ask your broker to run your loan through the lender’s servicing calculator using the current cash rate of 4.35% plus the 3.0% APRA buffer. Compare the resulting maximum loan amount with the contract price less your deposit. If the loan amount falls short by more than 10%, seek a second-tier lender that accepts a 2.5% buffer, or activate a guarantor arrangement now rather than two weeks before settlement.
3. Check your state’s sunset-clause compensation rights. Buyers in Victoria under the 2024 laws should document market value at the sunset date independently. In New South Wales, verify that the developer has not obtained Supreme Court consent without your knowledge. In Queensland and Western Australia, where compensation rights remain limited, negotiate a variation that requires mutual agreement to extend, or insist on a fixed compensation clause in the contract before exchange.
4. Secure a deposit bond if cash is tight and examine release triggers. If you used cash, confirm the stage at which the deposit can be released from trust. If construction has passed the 50% threshold and the developer is demanding release, obtain a deed of guarantee from a parent entity or a bank guarantee that secures the deposit against the land. Deposit bonds do not protect you after release; only a legal charge over the asset can do that.
5. Line up a bridging facility now if settlement and sale of an existing property coincide. Off-the-plan settlements rarely happen on the date promised. If you are relying on the sale of an family home to fund the purchase, apply for a bridging loan from a lender that will capitalise the interest for up to 12 months. The bridging loan’s eligibility is tested at the same 3% buffer, so model the combined debt service now to avoid a finance clause breach that could forfeit the 10% deposit.