Buying off the plan and difference in property value

[hardwicke81]

Hello People

I was hoping someone out there could help me with this.
I have been searching threads but can not find any exact answer.
I hope everyone understands what I am trying to ask here.
I have just signed a contract of sale for my first property off the plan, a 1 bed + study + car park apartment in Bowen Hills.
My question is theoretical as this situation probably will not arise but I am interested to know how it works just in case.
Lets say when the property is built, the bank send their valuer out and he values the apartment at $460k, my original contract of sale was for $415k.
I have already put down a 10% deposit which the developer is holding.
This means when it comes to getting the mortgage out I need to get a mortgage of $373,500, that's a difference of $86,500, slightly over 80% of the property value.
Does this mean that the bank will look at it that I am borrowing 80% of the property value and then not charge LMI or because I have only put a 10% deposit down they will still charge LMI?
I am trying to work out if in this situation I would be able to get out of paying LMI without putting any more in to the deposit and just using the equity that's been made in the place.

I hope this is not too confusing, any help would be appreciated.

 

[Corey Batt]

If the completion date is far enough from contract signature date they will take into consideration the variance in value, meaning you can effectively reduce your deposit, the LMI payable or a combination of the two. Do take note however that this works both ways - if it comes in lower you will be liable to make up the difference.

 

[Peter_Tersteeg]

There's no exact answer to this question. I've seen off the plan valuations come in above the purchase price and below the purchase price. The majority tend to come in at the contract price, even though it might have been 2 years to get it built.

It's a bit of a roll of the dice.

 

[Redom]

If its been long enough (generally 12 months +) since you exchanged contracts, some banks will take the valuation price instead of the contract price at settlement.

Therefore, if you purchased at 400k in January 2014, and it got valued at completion at 500k in March 2015, the bank will take 500k as the security value. You would borrow 80% of this, meaning you borrow the full 400k you purchased it for. This is obviously an unlikely outcome, but does happen. It's happened to quite a few developments in Sydney (inner west in particular) with prices rising quite fast over the past 12-24 months.

As CJay mentioned, the reverse could also happen. Its one of the risks associated with purchasing OTP stock.

Cheers,
Redom

 

[Jamie M]

If its been long enough (generally 12 months +) since you exchanged contracts, some banks will take the valuation price instead of the contract price at settlement.

Can even get away with 6 months these days which works out really well for some - particularly those who have purchased in Syd during the upswing.

Managed to dodge LMI completely for a Syd purchase the other day due to the valuation coming in 10% above purchase price.

Cheers

Jamie

 

[Jamie M]

Just had a Canberra OTP come in $25k higher.......never thought I'd see that in today's market

Small development in an area not known for lots of development though.

Cheers

Jamie

 

[danwatto]

Just had a Canberra OTP come in $25k higher.......never thought I'd see that in today's market

Small development in an area not known for lots of development though.

Cheers

Jamie

Nice to see some good news for Canberra.

 

[Jamie M]

Nice to see some good news for Canberra.

My thoughts exactly. I always get a little nervous when a client tells me that they've purchased off the plan - but this one has worked out well.

Cheers

Jamie