For many Australian property purchasers, there is a general assumption that the nervous excitement that comes from searching for a new home will naturally subside once they have had an offer accepted. Or that any lingering anxiety will naturally resolve once finance is unconditional. However, there is a vast amount of work that goes on behind the scenes in order to facilitate the purchase and the transfer of the property. This is generally outsourced by the purchaser to their mortgage broker and settlement agent, however, it should be duly noted that there is still a requirement that both sellers and buyers do have things that they will need to actively complete and handle.
As an experienced Perth mortgage broker, we have seen our fair share of settlement delays and it’s not something that anyone enjoys. Sometimes these settlement delays are caused by unforeseen issues and sometimes they could have been avoided entirely. At the very least, buyers should be aware of their responsibilities and a general timeline leading up to settlement.
Here we have summarised the most common issues that can impact settlement as well as what happens if settlement is delayed by either party.
What is property settlement?
When you agree to purchase a property, you’ll sign a contract with the vendor and enter a settlement period. Property settlement is the last piece of the home buying puzzle, where you (the buyer) pay the contracted amount to the person or organisation selling the property. It’s at this point that ownership of the house legally changes.
In Australia, settlement periods are negotiable but often last for 30, 60 or 90 days. The most common settlement period is 60 days. This amount of time is meant to be adequate for both the buyer and seller to organise the things that need doing before settlement, such as:
- securing a home loan
- finalising paperwork, and
- Cleaning.
Your conveyancer or lawyer will be able to advise what is specifically required for property settlement in Western Australia.
Common Causes of Settlement Delays
Buying or selling a property can be a stressful experience, and settlement delays can make the process even more challenging. These delays occur when the buyer or seller is unable to meet the agreed settlement date, often leading to unexpected complications. Some of the most common causes are problems on the lenders side, issues with the sale chain (e.g subject sale) or problems with the property (that have been identified through pre-settlement inspections).
However, some other issues that buyers have to be aware of include:
Discharge forms not being completed
A discharge occurs when the lender is removed from the title of the property secured against your home loan. If you have sold a property and are buying another immediately, you will need to ensure your mortgage of the old property is discharged at settlement.
Your home loan accounts will be closed as part of the discharge process.
There are three main reasons to discharge your home loan:
- Selling your property (sale)
- Repaying your home loan in full (payout)
- Refinancing your home loan with another lender (refinance).
How to avoid: work with a mortgage broker to ensure you don’t miss important documents being completed and returned within the timeframe.
Deposit not in the specified account
A home loan deposit is your initial contribution to the purchase price of a property. It means that you own a small portion of the home. A bigger home deposit may mean not having to borrow as much money, which may mean paying less interest over the life of your home loan. It could also mean paying off your loan sooner.
When you own more of the property with a larger deposit, it reduces the risk to the lender giving you the home loan. That’s why generally, the lender will require that you have a home deposit.
Many lenders now require a home deposit of 20% of the purchase price (excluding transaction costs). Some will accept lower deposits but you may have to pay Lenders Mortgage Insurance (LMI).
You’ll also need additional savings to meet property transaction costs such as solicitor/conveyancer fees, stamp duty and other charges.
These days, a part of your deposit will usually be paid to the real estate agent upon the exchange of contracts after your offer is accepted. They will hold the deposit in their trust account until they are advised by you or the settlement agent to transfer it before settlement.
The other part of your deposit required by the lender to be paid at settlement, will need to be in a bank account nominated by you, with the lender given authority to take the deposit at settlement OR have the deposit ready in your offset account or new account set up with the loan. Many times settlement is delayed it is because the bank hasn’t been given authority to access the deposit funds, or it is in another account that has not been specified to the bank or the broker.
How to avoid: Make sure you stay across your requirements with the deposit, including where it is being held and whether or not the lender needs to be given authority to access the funds at settlement. You also need to pay attention to your account withdrawal limits, in the instance that your deposit is going to be more than your maximum allowed withdrawal limit. This will save you any stressful trips into the branch to rectify on settlement day instead of putting the champagne on ice. While a mortgage broker can stay across this for you and guide you on what to do, it will be up to you to ensure the funds are deposited into the correct account with the required paperwork completed for the lender to access (the bank will often communicate this directly with you without broker involvement.)
Clearance certificate not completed
From 1 January 2025, all Australian residents selling real property are required to obtain a clearance certificate from the Australian Tax Office (ATO) following updates to foreign resident capital gains withholding (FRCGW) legislation.
Clearance certificates are issued in the legal name on the ATO’s system and delays are occurring when the name on the Certificate of Title doesn’t match ATO records. If you don’t have a clearance certificate by settlement, 15 per cent of the sale price must be withheld by the purchaser.
How to avoid:
To prevent unnecessary delays, the ATO has provided the following tips:
- Only first and last names need to match. Middle names do not need to be included, as they aren’t matched to ATO systems.
- If you have changed your name, you should update your details with the ATO before applying for a clearance certificate. This can be done online for Australian-issued documentation. Documents from an overseas source will need to be sent to the ATO by post so you will need to allow plenty of time for this.
- If you have changed your name, you must provide proof of this to the purchaser. This can include a marriage certificate or a legal change of name certificate.
- You must use your legal name, not nicknames or anglicised versions. You should ensure the name used matches official identification documents.
- It is recommended that you apply for a clearance certificate early. While most certificates are issued within a few days, some can take up to 28 days to process. Without a valid certificate at settlement, 15 per cent of the sale price will be withheld and only refunded (if applicable) after lodging a tax return.
For full details on clearance certificates, visit the ATO website at ato.gov.au/clearancecertificate.
Insurance not organised, listing lender as interested party
In Western Australia the buyer is responsible for damage to the property either on:
- the date the full purchase price is paid or
- the date the buyer is entitled to or is given possession of the property,
whichever date is first.
As a condition of your home loan, most lenders will require you to take out building insurance commencing on the day of settlement and with the lender listed as an interested party. For example, your lender may require you to take out building insurance that is effective from the date you sign the contract or before the loan becomes unconditional. If you have forgotten to organise this, or have not listed the bank on the policy, it may cause a problem at settlement.
How to avoid: Get organised early, and start arranging quotes for building insurance once your loan becomes unconditional. You can stipulate when the policy is to commence so you are not paying for it before it is required. Your broker can advise you on this and the best mortgage broker will remind you of what’s required in the lead up to settlement.
Lender delays
One of the most common causes of settlement delays is problems with the lender. If there is a backlog of loan applications causing slow processing times or the buyer or seller is slow to submit the necessary paperwork, this can lead to delays. Inaccurate or incomplete documents will also hinder the lender’s ability to complete the transaction on time. This includes loan documents and discharge forms, along with any other documents that have been requested by the bank as a part of the loan application process.
How to avoid: To avoid any settlement delays, you can make sure your paperwork is submitted on time and accurately, allowing enough time for the bank to process the loan before the settlement date. A good mortgage broker will help you through the required loan documents and follow up on their prompt return.
Property Concerns
Property-related issues can also delay settlement. The final inspection gives the buyer the chance to ensure the property is in the same condition as when the contract was signed. If damage or other issues are discovered, the buyer may request repairs or financial compensation, which could delay settlement. Depending on the terms of your contract, your conveyancer will inform you whether such issues can justify a delayed settlement. To avoid this, ensure that all plumbing, electrical, and gas fixtures are in good working condition prior to the final inspection.
Delays with Related Settlement Transactions
If the buyer’s purchase is dependent on the sale of another property, any delay in the settlement of the existing property can impact the ability to settle on the new property. If the sale of the related property is delayed, the buyer may not be able to meet the settlement date for the new purchase. In situations involving a subject-sale, it’s a good idea to consult your conveyancer before entering the purchase contract to ensure the timeframes are sufficient for your needs.
By being proactive and addressing potential issues early on, you can help avoid delays and make the settlement process as smooth as possible.
What happens when settlement is delayed?
Parties can include specific conditions in a contract if the buyer or seller causes a delay in settlement. Consequences of a settlement delay include;
Three day grace period
In WA, a ‘three-business day’ grace period is usually included in most contracts allowing both parties time to settle within this period, without any penalty being incurred. This is something that the real estate agent will generally ask on or at the day of the pre-settlement inspection. If you know in advance that you are going to have issues meeting the settlement day for whatever reason, it is best to communicate this to all parties as soon as is practicable.
Penalty Interest
If a party is not ready to settle on the due date, or within the grace period, the other party can choose to charge penalty interest for the delay in settlement. In WA, most contracts charge a daily penalty interest rate of 9% per annum.
For example, a purchase price of $500,000 where a $10,000 deposit is paid, the party responsible for the delay can be charged $120.82 per day, including public holidays and weekends from the settlement due date.
Contract termination
In the worst-case scenario, if you are having major issues reaching settlement, the other party may elect to terminate the contract. If you are the buyer, the seller may also have the right to claim your deposit. Other remedies may also be available to the party not at default. However, there are certain legal processes that must be followed in order for any of these options to transpire.
What else can you do to avoid settlement delays?
It’s important to know your rights when it comes to settlement delays, if they occur. The exact terms and conditions are included in the contract you sign. However, if either the buyer or seller requires changes to these, such as an extension of the settlement date, the parties may agree to sign a Variation of Contract, agreeing to the new terms.
Working with an experienced team including a settlement agent and a mortgage broker should help to mitigate any issues with settlement, however it IS important that all buyers (and sellers) are well versed in their responsibilities when it comes to preparing for settlement to ensure they avoid causing any costly and inconvenient delays.
Please reach out if you have any further settlement questions, or if you would like to get started on your home loan application with one of Perths best mortgage brokers.
Disclaimer: The information provided on this blog is for general informational purposes only and does not constitute financial or professional advice. While we strive to provide accurate and up-to-date information, mortgage laws and regulations can change, and individual circumstances may vary. We recommend consulting with a qualified financial advisor or mortgage broker to assess your specific situation and needs. Base Home Loans is not responsible for any actions taken based on the content of this blog. Always conduct your own research and consider seeking professional advice before making financial decisions.
