Off-the-plan serviceability rules: APRA buffers, HEM and your debts

You qualify for an off‑the‑plan loan only if you still pass the bank’s serviceability test at assessment, usually 3–6 months before settlement. Lenders apply an APRA‑driven interest rate buffer (currently at least 3% above the actual rate), compare your spending to HEM benchmarks, and load in all your existing debts and limits. If your income or rates move against you before assessment, approval can evaporate.

Quick answer for busy buyers: to keep an off‑the‑plan purchase safe, you need to (1) pass serviceability at a rate roughly 3% above today’s, (2) show living costs at or above HEM but still leaving surplus, and (3) reduce credit cards, car loans and BNPL before the bank runs the numbers.

Off-the-plan purchases are tested using higher buffered rates before settlement.

1. How serviceability works for off-the-plan buyers

Off‑the‑plan serviceability is the same core test as any other loan, but applied later and more conservatively because so much can change between contract and completion.

1.1 Timing risk: assessment is near settlement, not at contract

When you sign the off‑the‑plan contract, the bank is not locking in a future approval. The real credit decision is normally:

• 3–6 months before settlement, or
• When the developer issues the Occupation Certificate and calls for valuation.

By then, interest rates, your income, your debts and living costs may all look different. If your income has fallen, start triage early – see /insights/income-drops-before-off-the-plan-loan-assessed.

1.2 Core ingredients of the servicing test

Most lenders use a similar framework:

1. Start with gross income (salary, bonuses, self‑employed profit, rent, investment income).
2. Apply shading (e.g. 80% of rent, 60–80% of bonuses, average of 2 years for self‑employed).
3. Subtract tax, using ATO tables or in‑house models.
4. Subtract living expenses, picked as the higher of your declared spend or HEM.
5. Add all loan repayments, stressed with APRA buffers.
6. Check that you still have surplus (a few hundred dollars per month, minimum).

If anything in steps 1–5 gets worse between contract and assessment, your borrowing power drops.

2. APRA’s 3% serviceability buffer for off-the-plan loans

APRA tells banks to test most new home loans at least 3 percentage points above the actual rate. For off‑the‑plan, many lenders sit comfortably above the bare minimum.

2.1 What the buffer actually does

If your real rate is, say, 6%, the servicing calculator might test at 9%. That can easily cut capacity by tens or hundreds of thousands of dollars.

Worked example – $800k off-the-plan purchase

• Purchase price: $800,000
• Deposit: 20% ($160,000)
• Loan needed: $640,000
• Actual P&I rate: 6.0% p.a., 30‑year term
  • Real repayment ≈ $3,838/month
• Assessed rate with 3% buffer: 9.0% p.a.
  • Assessed repayment ≈ $5,151/month

The bank doesn’t care that you’ll initially pay ~$3,838. Serviceability is tested at ~$5,151 plus buffers on any other debts. If your income and expenses can’t comfortably support that, you fail.

2.2 Why buffers matter more on long build times

For a build that runs 18–36 months, you must assume:

• Rates could be higher than today.
• Your income could be interrupted (parental leave, contract ending, illness).
• APRA rules could tighten.

A practical rule – consistent with our buffer guidance in other contexts – is to self‑test at 2–3% above today’s rates and keep 6–12 months of total holding costs in cash or offset. That way, if the RBA moves again before you settle, you’re not scrambling.

For a deeper dive on how APRA rules, buffers and LVR interact, see /insights/lvr-lmi-apra-rules-equity-strategy.