Vacant Land Loans: What You Need to Know

Buying vacant land is not the same as buying a house. Lenders treat land purchases as higher risk, which affects your deposit requirement, interest rate, and loan structure.

How Lenders Assess Vacant Land Purchases

Lenders consider vacant land a higher-risk asset because it generates no rental income and cannot be occupied. Most lenders require a minimum deposit of 20% for land purchases, compared to 5% or 10% for established homes. Some lenders will accept a 10% deposit if you can demonstrate a clear plan to build within 12 months, supported by council-approved plans and a fixed-price building contract. Without those documents, expect to provide at least 20% upfront.

Lenders mortgage insurance is not available on most vacant land loans. This means if you do not have a 20% deposit, your options become limited to specialist lenders who charge higher interest rates to offset the increased risk. Under APRA's Prudential Standard APS 112, a residential mortgage must be secured by a registered first mortgage over a property with unequivocal enforcement rights. Vacant land meets this requirement, but the absence of a dwelling affects the lender's ability to recover funds in the event of default, which is why higher deposits are standard.

Consider a buyer purchasing a block in Ferntree Gully with the intention to build within two years. The buyer has a 15% deposit and applies to a major lender. The lender declines the application because the buyer does not have building plans or a contract in place. The buyer then approaches a non-major lender willing to accept 15% with a higher variable rate of 1.2% above the standard owner-occupied rate. The buyer accepts the higher rate, knowing they can refinance to a lower rate once construction is complete and the property is habitable.

Interest Rates and Loan Structures for Land Purchases

Vacant land loans typically attract higher interest rates than owner-occupied or investment property loans. Rates vary depending on the lender, your deposit size, and whether you have a signed building contract. Variable rates are more common than fixed rates for land loans, as lenders prefer flexibility given the uncertain timeline between purchase and construction.

Some lenders classify vacant land as an investment, even if you intend to build your own home on it. This classification can push the interest rate higher again. If you can prove you will commence construction within 12 months and occupy the completed home, some lenders will classify the loan as owner-occupied, which attracts a lower rate. Documentation required includes council-approved building plans, a fixed-price building contract, and evidence of sufficient funds or approved finance to complete the build.

An offset account is less common on land loans, but some lenders do offer this feature if the loan is classified as owner-occupied. If your loan does not include an offset, making extra repayments directly onto the principal can reduce the total interest paid over the life of the loan.

Stamp Duty and Government Assistance in Victoria

Stamp duty applies to vacant land purchases in Victoria. The rate is calculated on the purchase price using the standard land transfer duty scale. For first home buyers, a concession applies to vacant land valued up to $450,000, with a sliding scale concession for land valued between $450,001 and $550,000 under the NSW First Home Buyers Assistance Scheme. In Victoria, a full stamp duty exemption applies to vacant land valued up to $350,000, with a concession for land valued between $350,001 and $450,000, provided the buyer intends to build and occupy the home as their principal place of residence.

Ferntree Gully sits within the Dandenong Ranges, where vacant land is less common than in growth corridors further out. Blocks that do become available are often smaller and closer to existing infrastructure, which can push the land value above the exemption threshold. If the land is valued above $450,000, the buyer pays stamp duty calculated on the full amount at the standard rate.

The Victorian First Home Owner Grant of $10,000 does not apply to the purchase of vacant land alone. It applies only when the land and building contract are packaged together, or when a new home is purchased. If you are buying land now and plan to build later, the grant may be available when you enter into the building contract, provided the combined land and build value is under $750,000 and you meet all other eligibility criteria.

The Australian Government 5% Deposit Scheme does not apply to vacant land purchases. It is available only for the purchase of residential dwellings that are ready to occupy or under construction. Help to Buy also does not apply to vacant land alone.

How Construction Loans Work After You Buy the Land

Once you own the land, the next step is securing finance to build. A construction loan is drawn down in stages as the build progresses, rather than as a lump sum at settlement. Most lenders require you to own the land outright or have it fully paid off before approving a construction loan. Some lenders will allow you to roll the land loan into the construction loan, creating a single facility secured against the land and the partially completed dwelling.

Interest during construction is calculated only on the amount drawn down, not the total approved loan amount. During the construction phase, most borrowers make interest-only repayments. Once the build is complete and the property is habitable, the loan converts to principal and interest repayments at the agreed rate and term. The final loan amount includes the land purchase price, construction costs, and any capitalised interest accrued during the build.

If you are planning to build a first home, timing the land purchase and construction loan approval is important. Holding land for an extended period without commencing construction increases your interest costs and delays your ability to occupy the property or access the First Home Owner Grant.

Borrowing Capacity and Serviceability for Land Loans

Lenders apply the same serviceability buffer to land loans as they do to all residential lending. You must demonstrate capacity to service the loan at an interest rate at least 3.0 percentage points above the loan product rate. If you are borrowing to purchase land and plan to take out a construction loan shortly after, the lender may assess your capacity to service both loans simultaneously, even if the construction loan has not yet been drawn.

Debt-to-income limits also apply. From 1 February 2026, each lender may approve up to 20% of new owner-occupier loans to borrowers with a total debt-to-income ratio of six times or greater. If your total borrowings, including the land loan and any future construction loan, exceed six times your gross income, you may fall outside standard lending policy and require lender approval as an exception. Non-major lenders are not subject to this limit, which is one reason they can be more flexible for land and construction finance.

Call one of our team or book an appointment at a time that works for you. We work with lenders across Australia who offer construction loans and land finance, and we can walk you through the deposit requirements, interest rates, and documentation needed to move forward with your purchase in Ferntree Gully.

Frequently Asked Questions