Minimising apartment settlement risk

Market Insights
7 years ago
2 minutes
There have been a few horror stories in recent months regarding the thorny issue of settlement risk, with property purchasers being caught out.
In a nutshell, this is caused by buyers securing finance from a mortgage lender for an off-the-plan apartment, putting down a deposit based on a stated price, and then the lender refusing to loan the previously agreed amount come settlement time.
In most instances, this is due to the valuation of the completed apartment being less than it was at the time finance was agreed with a lender. And being left with a smaller amount than the contracted sale price of your apartment leaves you with a shortfall to cover.
There are a number of reasons for lenders making this decision, from the adjustment in a particular suburb’s general housing market value, to an increase in similar apartment buildings being built in the area.
Many lenders have tightened their contracts in recent years to ensure they aren’t left with a stack of defaulted loans. It can be a sticky problem for buyers. Here’s how you can guard against it.

Have a professional property manager or solicitor read your mortgage contract carefully.

Knowing the terms of your contract is essential to plan your finances. If your contract states that your lender may not lend the agreed amount following a revaluation prior to settlement, make sure you are aware of the implications on your finances.

Do your location research.

If you buy in a popular, high-demand area, there should be a reduced risk of your property being devalued even if there is an increase in apartments from further development in the area.

Choose a property or development that is offering something special.

Maintaining market value is easier if your apartment is unique. Things like a larger or smarter floorpan, quality fittings and finishes or great views can make a difference. More and more, apartment developments include a number of added extras within the building like a gym, pool, roof garden or shared dining rooms. These will all help maintain your property value in an increasingly busy market.


Don’t overstretch yourself in the first place.

If you buy an apartment that’s at your maximum spend limit, you will be in trouble if your lender refuses to meet the agreed loan amount at settlement. Always leave yourself a safety net so that you’ll still be able to meet your mortgage payments if your loan amount falls short.
Whilst we hope this helps, this article should not be construed as actual financial advice and we recommend the first point above – always consult a professional financial advisor before making a property purchasing decision.