When Your Bank Isn't Ready to Settle in Victoria

This is one of the most stressful calls we receive in the final week before settlement: the buyer has packed, booked the removalists and then hears that the bank may not be ready. The good news is that early action can often turn a looming default into a short, documented extension.

The short answer: If your lender isn't ready on settlement day, the purchaser will usually be treated as the party in default because the contract is between you and the vendor, not the bank. Penalty interest may run daily on the unpaid balance, the current Victorian statutory rate is 10% per annum, and a standard form default notice generally gives 14 days to remedy the default before stronger termination rights may arise. Your exact position depends on the wording of your contract, including any special conditions.

Why might a bank not be ready for settlement?

A bank can approve your loan and still be unready to release funds. The lender must also complete document checks, confirm the amount required, book settlement and finish its electronic tasks.

Common causes include:

Loan documents were late or incorrect. A missing signature, witness detail or updated form can stop certification.
Your contribution is not in the nominated account. A late transfer or changed account can create a hold.
The final amount has changed. Rates, water and owners corporation adjustments can alter the shortfall the bank must fund.
The bank has repeated its financial checks. A new job, credit card or car loan can trigger another assessment before drawdown.
A grant or duty step is unresolved. First home buyer funding can change if an expected amount is not available in time.
The lender has a backlog. Busy end-of-month and pre-Christmas periods expose files that were not completed early.
The electronic workspace is not ready. The conveyancers and lenders must finish the required documents, figures and authorisations. Our guide to how settlement runs on PEXA explains the process.

Finance approval is not the same as settlement readiness. Ask for both confirmations.

Who is responsible if the bank misses settlement?

The purchaser is usually responsible under the contract. The vendor agreed to sell the property to you, so a delay by your lender generally sits on your side of the transaction.

That can feel unfair when you've answered every request. The contract still requires payment on the agreed date unless the vendor accepts a written change.

In our practice, we've seen buyers assume everything is fine because the lender has gone quiet. A week before settlement, an unfinished PEXA task reveals that one signed form was never accepted. Silence in the final fortnight is a reason to check.

For a wider explanation of purchaser default, read what happens when a buyer delays settlement.

How much can a bank delay cost?

The main contractual cost is usually penalty interest calculated daily on the unpaid balance. The Supreme Court of Victoria states that the current rate under the Penalty Interest Rates Act 1983 (Vic) has remained at 10% per annum since 1 February 2017.

The updated LIV and REIV standard contract removed the former extra two percentage points from its interest condition. Older contracts, amended forms and special conditions may still set a 12% rate or another figure, so your conveyancer must read the contract you actually signed.

Consider a $650,000 townhouse in Reservoir with a $65,000 deposit. The balance before adjustments is $585,000. At 10% per annum, the daily interest is about $160.27:

three days late: about $480.82
seven days late: about $1,121.92
14 days late: about $2,243.84

The final figure can differ because settlement adjustments change the amount owing. The vendor may also seek reasonable costs allowed by the contract.

Real-life expenses include removalist fees, storage, extra rent and short-term accommodation. These bills can overtake the interest quickly. Our guide to penalty interest for late settlement explains the calculation in more detail.

Can the vendor end the contract if the bank is late?

The vendor usually cannot end the contract the moment the scheduled settlement is missed. Under the standard Victorian form, the vendor would generally need to serve a written default notice that identifies the default and allows 14 days for it to be remedied, with interest and reasonable costs paid.

A formal notice to complete should never sit unread in your inbox. Send it to your conveyancer immediately. The wording, service method and deadline need to be checked against your contract.

If the default is not remedied, the vendor may gain rights to end the contract, keep the deposit up to 10% of the price, resell and claim losses, depending on the contract and circumstances.

Many vendors prefer a firm new date and interest rather than a resale. You should not rely on goodwill. A lender's promise that the file is 'nearly done' does not stop the deadline.

What does your conveyancer do when the bank isn't ready?

Your conveyancer confirms the problem, presses for a workable date and protects the paper trail. Early requests are easier to negotiate than requests made after default.

The usual steps are:

Check the workspace and settlement figures. Your conveyancer identifies what is unfinished and whether the lender, purchaser or another participant is holding up readiness.
Contact the lender's settlement team. The broker can help, but the lender's settlements staff usually control document certification, booking and funds release.
Get a specific written update. 'We're working on it' is not enough. The useful answer identifies the missing item, who owns it and the earliest realistic settlement date.
Approach the vendor's representative early. If the bank cannot meet the date, your conveyancer can request a settlement extension before the deadline passes.
Negotiate and record the terms. The parties may agree on a new date, penalty interest, recalculated adjustments and reasonable costs. The agreement should be in writing.
Keep pressure on the lender. An extension is not a reason for the bank file to drift. Daily follow-up may be needed until every item is complete.

Your conveyancer cannot force an extension or instant bank action. They can document the request and explain the risks before the position gets worse.

How can you reduce the risk of a bank delay?

Treat the final month as an active checklist. Most preventable delays begin with one unfinished task.

Return loan documents promptly and review every signature, date and witness section.
Keep your funds to complete in the nominated account and avoid moving them without approval.
Tell your broker before changing jobs, applying for credit or making a large purchase.
Reply to lender requests on the day they arrive, even when the bank asks for the same document twice.
Make sure your name is consistent across the contract, identification and loan documents.
Confirm insurance requirements with your lender well before settlement.
Ask about any First Home Owner Grant or duty steps that could affect the available funds.
One week before settlement, ask the lender to confirm in writing that documents are certified, conditions are satisfied and settlement is booked.
Ask your conveyancer whether the electronic workspace is on track and whether any lender task remains incomplete.

Auction buyers need extra care because the contract is commonly unconditional. Test the proposed settlement period before you bid.

What should you do if the bank warns you late?

Act on the warning the same day. Forward it to your broker and conveyancer, identify the missing item and request a realistic completion date in writing.

Do not agree directly with the vendor or agent to a new date. A casual text may overlook interest, costs, adjustments or an existing default.

Keep emails, reference numbers and phone notes. After settlement, you may use the bank's complaints process to seek reimbursement. A clear timeline will support your request.

Frequently asked questions

What happens if my bank is not ready to settle on settlement day?

Settlement will usually be delayed, and the purchaser may be treated as being in default under the contract even when the lender caused the problem. Penalty interest and reasonable costs may become payable. Your conveyancer should seek a written extension and obtain a firm lender update straight away.

Do I pay penalty interest if the bank isn't ready to settle?

Usually, yes. The vendor's claim is against you as purchaser, not directly against your bank, and interest is generally calculated daily on the unpaid balance. The current Victorian statutory rate is 10% per annum, but your contract may specify a different rate.

Can the vendor cancel the contract if my bank isn't ready to settle?

Not usually on the first missed day. A standard form default notice generally gives 14 days to remedy the default and pay interest and reasonable costs. If the default remains unresolved after a valid notice expires, the vendor may have a right to end the contract and pursue other remedies.

How do I know whether my bank is ready to settle?

Ask your broker or lender to confirm that loan documents are certified, all conditions are met, funds are available and settlement is booked. Ask your conveyancer whether the lender has completed its required PEXA tasks. Vague answers one week before settlement should be escalated.

Can settlement be extended if the bank needs more time?

Yes, if the vendor agrees. There is no automatic right to an extension simply because a lender is late, so the new date and any interest or costs should be recorded in writing. Early, specific requests are usually easier for the vendor to consider.

Who pays for the bank's delay, me or the bank?

At settlement, the purchaser usually pays the contractual interest and agreed costs needed to complete the transaction. After settlement, you can complain to the lender and seek reimbursement if its conduct caused the loss. Keep clear records because the bank will assess the sequence of events and the documents you supplied.

About the Pearson Chambers Conveyancing team

Pearson Chambers Conveyancing is a Melbourne-focused practice supporting Victorian buyers and sellers, including first home buyers preparing for their first settlement. We review contracts, coordinate PEXA settlements, chase lenders and explain risks in plain language. Spotting a lender delay early and getting a workable extension documented is part of the day-to-day work our team handles.

Sources we consulted

Is your bank falling behind before settlement?

Do not wait until settlement morning to find out whether the lender is ready. Pearson Chambers Conveyancing can review the position, contact the relevant parties and help you seek a properly documented extension where needed.

Email contact@pearsonchambers.com.au.

We also offer a complimentary Section 32 and contract review before you sign, giving you a chance to check the settlement period, finance terms and practical risks at the start.

General information only, current as at the date of publication. Victorian conveyancing rules and legislation change frequently. Please contact the Pearson Chambers Conveyancing team for advice on your specific contract.