When buying property in Victoria or elsewhere in Australia, one of the most stressful moments is settlement day — the day when ownership officially transfers, and funds are exchanged. Even with conveyancers and real estate agents working hard, there’s a real risk that your bank may refuse settlement, leaving you in a difficult spot. That’s why choosing experienced conveyancing services in Melbourne matters so much: a knowledgeable conveyancer can anticipate potential lender issues, coordinate with your broker and bank, and help you avoid settlement failure.
In this article, we’ll explore 10 common reasons why a bank may refuse to settle, explain how these risks arise, and walk you through proven strategies to prevent them. Whether you’re a first-time buyer, an investor, or refinancing, knowing these pitfalls can save you time, money, and stress.
1. Incomplete or Incorrect Loan Documentation
Why It Happens:
Banks require a number of formal documents to approve and finalise a home loan. If your loan paperwork — such as the loan contract, income proof, identification, or supporting financials — is incomplete, contains errors, or wasn’t signed properly, the lender may refuse to proceed with settlement. These might include missing signatures, mis-specified names, or mismatched addresses.
Preventive Measures:
Work closely with your mortgage broker to ensure all documents are correctly filled out and signed well before the settlement date.
Re-check personal details (names, addresses, contact details) on the loan documents against your ID.
Keep a checklist for your broker/conveyancer of the required paperwork and track its completion.
2. Valuation Issues or Revaluation
Why It Happens:
Lenders order a property valuation to confirm that the property is worth what you’re paying (or more). If the valuation comes in lower than expected — perhaps due to issues found in the property, comparable sales falling, or appraisal miscalculations — the bank may refuse to lend the full amount, reducing finance or even pulling out.
Preventive Measures:
Ask your broker to order a valuation early and, if possible, choose a valuater known to your lender.
Provide recent comparable sales (comps) to your lender to support the valuation.
Build a buffer into your deposit or budget in case the valuation comes in lower than the purchase price.
3. Verification of Identity (VOI) Delays or Issues
Why It Happens:
Australian lenders require strict “Verification of Identity” (VOI) checks. If these checks aren’t completed in time — or the documents submitted are not valid or properly certified — your loan may not be booked in for settlement.
Preventive Measures:
Complete your VOI well ahead of the settlement date. Use certified documents (e.g., certified copy of passport, driver’s license), and make sure they meet the lender’s criteria.
Work with your conveyancer and broker to confirm that all VOI requirements have been met early.
Avoid leaving identity checks to the last minute, especially if settlement is tight.
4. Discharge of Existing Mortgage Not Processed
Why It Happens:
If the property you’re buying is still mortgaged (as is common for a vendor), the vendor’s bank must discharge the existing mortgage before settlement. If the discharge authority isn’t lodged early or signed correctly, or the seller’s lender delays, the bank may refuse settlement because the title cannot be cleared.
Preventive Measures:
Ask your conveyancer to ensure that the vendor has lodged a discharge authority with their lender well in advance.
Track this with the vendor’s conveyancer or settlement agent, pushing for proof of lodgement.
Negotiate a longer “finance due” date in the contract (if possible) to give more buffer for discharge.
5. Internal Bank Bookings Not Made
Why It Happens:
Even with finance approval, the bank must “book in” the loan for settlement in its system. Some banks take time to complete internal checks, document generation, or clearance. According to reports, lenders may need up to 10 business days from final approval to be ready to settle.
Preventive Measures:
Ask your broker or lender to confirm that the settlement is “booked in” (not just verbally approved).
Regularly follow up in the weeks leading up to settlement and ensure your conveyancer is liaising with the lender.
Avoid scheduling a settlement on a Friday, when banks are busier and there’s less buffer.
6. Insufficient Funds or Shortfall
Why It Happens:
If there is a shortfall between the loan amount and the funds required for settlement (including adjustments, rates, and legal fees), the bank may refuse to fund. This can happen if the buyer didn’t budget for extra costs, or the lender didn’t approve enough financing to cover all disbursements.
Preventive Measures:
Prepare a detailed settlement budget with your conveyancer, including all possible costs: stamp duty, strata rates, levies, discharge costs, and legal fees.
Ensure you have the shortfall (if any) ready well in advance in cleared funds.
Confirm with your lender the “settlement payout” amount and compare it with your conveyancer’s adjustments.
7. Changes to Your Financial Situation
Why It Happens:
Your financial situation can shift between loan approval and settlement. If you change jobs, your credit score drops, you take on new debt, or your income fluctuates, the lender may reconsider the loan or even withdraw the offer.
Preventive Measures:
Avoid major financial changes (like switching jobs, large purchases, or new debts) after getting loan approval.
Keep your broker and conveyancer updated if any financial change is likely.
If changes are unavoidable, request a re-evaluation early and confirm with your lender that the loan remains “unconditional.”
8. Technical or PEXA Workspace Errors
Why It Happens:
Settlement nowadays often happens electronically via platforms like PEXA. Errors in entering lot numbers, folio references, or financial figures into the workspace can derail settlement. Mistakes in financial adjustments or incomplete input can lead the bank to refuse funding because the workspace is not correct.
Preventive Measures:
Use an experienced conveyancer who understands PEXA workflows and double-checks all entries.
Run a pre‑settlement review in the PEXA workspace to verify title, figures, and lot numbers.
Liaise with the other party’s conveyancer early to ensure that adjustments (such as council rates and strata levies) are correct.
9. Compliance, Certification & Rates Issues
Why It Happens:
Settlement may be refused if important certificates (e.g., council rates, water, land tax, owners corporation) are missing, or their adjustments haven’t been calculated correctly. Additionally, if the compliance conditions in the contract (such as building reports or certificate requirements) haven’t been fulfilled, the bank may not approve the funds.
Preventive Measures:
Have your conveyancer order all relevant certificates and statements early, and follow up persistently.
Negotiate in your contract a clause that requires updated certificates shortly before settlement (rather than relying on old ones).
Make sure any “special conditions” (like building inspection or remediation) are clearly documented and met before settlement.
10. Lender Backlog or Peak Processing Times
Why It Happens:
Banks sometimes face internal backlogs, particularly during busy periods or due to staff/resource constraints. According to regulatory reviews, lenders may delay disbursement, final checks, or confirmation of “shortfall funds” at the last minute. Also, some conveyancing professionals note that banks may wait until the very last minute — even just before settlement — to finalise their side.
Preventive Measures:
Start the finance process as early as possible.
Confirm with your lender whether they are experiencing a backlog and push for an early “settlement booking.”
Engage a conveyancer who proactively follows up with the lender, broker, and settlement agents to ensure everything is ready well before settlement day.
Case Study: When the Bank Backed Out at the Last Minute
Background:
Sarah and Jason, a young couple in Ringwood, Melbourne, were in the final week before settlement on their first home. They had received unconditional loan approval from their lender through their broker and engaged an experienced conveyancer for their conveyancing services in Melbourne.
What Went Wrong:
The bank’s internal settlement booking was delayed; despite the finance being formally approved two weeks earlier, the lender’s internal department only “booked in” the settlement one day before the due date.
A PEXA workspace had a minor error: the lot number for the property was mistyped, and the adjustment figures for council rates were slightly off.
The vendor’s discharge of mortgage documents wasn’t properly lodged by their bank, causing a title clearance issue.
On settlement day, the bank refused to transfer the funds. The PEXA workspace was flagged with discrepancies, and the lender decided not to proceed until all issues were resolved.
How It Was Resolved:
Their conveyancer immediately notified all parties — the broker, the vendor’s conveyancer, and the bank.
They requested a short extension of 2 business days from the vendor. Though not guaranteed, the vendor agreed because the communication was clear and timely.
Their conveyancer corrected the PEXA workspace entries, recalculated adjustments, and confirmed all figures.
The vendor’s conveyancer chased the discharge authority with the vendor’s bank and obtained proof of lodgement.
On the new settlement date, the bank finally transferred funds, used the corrected workspace, and the settlement was completed successfully — avoiding termination or penalties.
Lessons Learned:
Early and meticulous coordination between broker, conveyancer, and bank is critical.
Confirming “settlement booked in” is not just a formality; it needs to be verified.
Using a conveyancer experienced in PEXA can prevent data-entry errors.
Having contingency plans (like short extensions) and strong communication channels can rescue tricky settlement situations.
How to Prevent Settlement Refusal: Best Practices Summary
To summarise, here are the key strategies to avoid having a bank refuse settlement:
Get pre-approval early, but don’t rely solely on it — complete unconditional approval before settlement.
Complete all loan documentation carefully, checking every detail.
Finish VOI checks ahead of time using certified copies.
Order discharge authorities and certificates early to ensure vendor obligations are met.
Regularly follow up with both your lender and conveyancer about the progress of the settlement workspace.
Avoid Friday settlements and give buffer time in case of delays.
Build a realistic settlement budget, including all possible costs and shortfalls.
Maintain financial stability between approval and settlement — avoid large purchases or job changes if possible.
Use an experienced conveyancer who understands PEXA and common lender pitfalls.
Keep communication open between all parties (broker, lender, conveyancer, vendor) and have fallback plans (extensions, prewritten notices) ready if needed.
FAQs (Frequently Asked Questions)
Q1: Can a bank refuse settlement even if my loan is approved?
Yes — approval and settlement readiness are different. The bank still needs to confirm internal processes (book in the loan for settlement), check the PEXA workspace, and ensure all documents (VOI, discharge, funds) are in place. If any of these elements is missing, the bank may refuse.
Q2: What happens if the bank refuses settlement on the day?
If your bank refuses on settlement day, your conveyancer should immediately communicate with the vendor’s conveyancer to negotiate a short extension or work out a solution. If the vendor agrees, you avoid breach and possible penalties. If not, it may lead to default notices or even contract termination.
Q3: What is a PEXA workspace, and why does it cause so many issues?
PEXA (Property Exchange Australia) is an electronic platform for property settlements. A “workspace” is where financial figures, title references, adjustments, and party details are entered. Errors in this workspace (wrong lot numbers, mis‑entered financials) can lead to bank refusal because the system doesn’t balance or match what was agreed.
Q4: How long does it typically take the bank to “book in” for settlement?
It varies by lender. In some cases, banks may require up to 10 business days from final approval to be “ready” for settlement, to complete internal checks, documentation, and bookkeeping.
Q5: Can I avoid this risk by not using finance?
If you pay cash (i.e., no bank loan is involved), you avoid lender‑refused settlement risks. However, most buyers rely on finance. Even if you’re refinancing or using bridging loans, involving the bank means going through these checks.
Q6: Should I pay penalty interest if the settlement is delayed?
It depends on your contract. According to standard Victoria contracts, the vendor may issue a Notice to Complete if settlement is not met, and you may be liable for penalty interest (often up to 10% p.a.). Working proactively with your conveyancer can help negotiate extensions and avoid penalties.
Conclusion
Settlement failure due to a bank refusing to transfer funds is one of the most frightening and disruptive risks in the property‑buying process. However, many of these risks are entirely preventable with the right preparation, communication, and expert support. Choosing high-quality conveyancing services in Melbourne, staying on top of your finance process, and maintaining close collaboration between you, your broker, and your conveyancer can make all the difference.
By being proactive — checking documentation, verifying PEXA entries, securing discharge authorities, and avoiding last-minute rushes — you can significantly reduce the chances of settlement falling apart. With good planning, you can walk confidently into settlement day and rest assured your bank will follow through.
