A land loan is a mortgage used to purchase a block of vacant land, whether you intend to build on it immediately, in the future, or hold it as an investment. Unlike a standard home loan where the property includes a dwelling that provides immediate security and utility, a land loan finances an undeveloped block, which lenders view as a higher-risk proposition.
Land loans are common in growth corridors around Geelong, Melbourne’s western and northern suburbs, and throughout regional Victoria where new estates are being developed. They are also used by buyers who find an ideal block in an established area and want to secure it before building their home. For investors, vacant land can offer capital growth potential with minimal holding costs compared to an improved property.
The lending criteria for land loans differ significantly from standard home loans. Lenders are more cautious because vacant land generates no rental income, is generally harder to sell in a downturn, and carries the risk that the borrower may not proceed with building, leaving an unimproved asset as security. Understanding these differences before you start shopping for land helps you prepare a stronger application and avoid disappointment.
There are several types of land loan products available in Australia, each suited to different purchase scenarios. The type you need will depend on the land’s location, size, zoning, and your plans for it.
| Loan Type | Purpose | Typical LVR | Typical Term |
|---|---|---|---|
| Residential land loan | Zoned residential, under 2.5ha | Up to 80-90% | Up to 30 years |
| Land and construction | Buy land + build in one package | Up to 80-95% | Up to 30 years |
| Rural/acreage land loan | Larger blocks, farming zones | Up to 60-80% | Up to 25 years |
| Commercial land loan | Commercial or industrial zoned | Up to 65-70% | Up to 15-20 years |
The deposit required for a land loan is generally higher than for a standard home loan. While you can purchase an established home with as little as 5% deposit (plus lenders mortgage insurance), vacant land purchases typically require a minimum 20% deposit with most mainstream lenders.
Some lenders will consider land loans at a higher LVR (up to 90% in certain cases), but this usually applies only to residential-zoned blocks within established suburbs or approved housing estates, and will attract LMI. The LMI premium on a land loan is often higher than the equivalent premium on a home loan because lenders perceive vacant land as a higher-risk asset.
If you are purchasing a land and construction package, your deposit requirements may be more favourable. Because the lender is financing both the land purchase and the construction of a dwelling, the end product is an improved property with a home on it. Many lenders will assess the combined value of the land plus completed home, allowing a higher overall LVR. This is often the most cost-effective way to finance a new build, as the combined loan can attract standard home loan rates rather than the premium rates charged on standalone land loans.
median land price in the Greater Geelong region, highlighting the importance of understanding land loan requirements in growing regional markets
Interest rates on land loans are typically 0.25% to 0.75% higher than standard variable home loan rates, reflecting the increased risk lenders associate with unimproved land. However, rates vary significantly between lenders, and some may offer competitive rates for land purchases in areas they consider low risk, such as established suburban estates or high-demand regional locations.
Most land loans are offered on a variable interest rate basis, though some lenders provide fixed rate options. The choice between fixed and variable depends on your plans for the land. If you intend to build within 12 to 24 months and will convert to a construction loan, a variable rate provides more flexibility. If you are holding the land as a longer-term investment, a fixed rate may offer budget certainty.
Be aware of any additional fees that may apply to land loans. Some lenders charge a higher establishment fee for land loans, and valuation fees may be more expensive for vacant land in areas where comparable sales are limited. Monthly or annual account-keeping fees may also apply. Always compare the total cost of the loan, not just the headline interest rate, when evaluating your options.
James found a 700-square-metre block in a new estate in Armstrong Creek, Geelong, priced at $310,000. He had a $65,000 deposit (approximately 21%) and planned to build within two years. We secured a land loan at a competitive rate with a lender that would allow a seamless conversion to a construction loan when he was ready to build, saving him the cost and hassle of refinancing. The land loan featured interest-only repayments, keeping his holding costs low while he finalised his building plans.
If you purchase land with the intention of building, you will eventually need to transition from a land loan to a construction loan. The process for doing this depends on whether your lender offers a seamless conversion or whether you need to refinance to a new product.
Some lenders offer a combined land and construction loan that covers both the land purchase and the subsequent build in a single facility. With this arrangement, the loan initially covers the land purchase price, and the construction component is drawn down in stages as the build progresses. This is generally the most efficient approach because it avoids duplicate application fees, valuations, and legal costs.
If your current land loan does not include a construction component, you will need to apply for a separate construction loan or refinance your land loan into a construction product when you are ready to build. This involves a new application, serviceability assessment, and valuation of the proposed completed home. Your broker can advise on the best approach based on your current lender’s policies and whether switching lenders might offer better terms for the construction phase.
Purchasing vacant land requires thorough due diligence to ensure the block is suitable for your intended purpose and that there are no hidden issues that could affect the value or your ability to build. Several key checks should be completed before you commit to a purchase.
Zoning and overlays determine what can be built on the land. Check with the local council that the zoning permits your intended use and that there are no overlays (such as bushfire, flood, heritage, or environmental significance) that could restrict development or add to construction costs. A planning certificate from council will outline all applicable controls.
Services and connections include water, sewerage, electricity, gas, telecommunications, and stormwater drainage. In new estates, these services are typically brought to the block boundary as part of the development, but in established areas or rural locations, you may need to pay for connections. The cost of connecting services to a remote block can run from $10,000 to over $100,000 depending on the distance to existing infrastructure.
Soil testing and site assessment should be conducted before purchasing if possible. Poor soil conditions (such as reactive clay, rock, or high water tables) can significantly increase construction costs through the need for deeper foundations, piering, or extensive site preparation. A geotechnical report typically costs $1,500 to $3,000 and can save you from costly surprises during the building process.
Before signing a contract to purchase land, include a finance clause (typically 14 to 21 days) and a due diligence clause. The finance clause protects you if your loan is not approved, while the due diligence clause allows you to conduct soil testing, planning checks, and service enquiries. For off-the-plan land purchases in new estates, titles may not be issued for months after signing, so ensure your finance approval timeline aligns with the expected title registration date.
One cost that many land buyers fail to account for is land tax. In Victoria, land tax is an annual state government charge based on the total taxable value of all land you own as of 31 December each year. Unlike council rates, which apply to all properties, land tax has a tax-free threshold (currently $50,000 for individuals in Victoria) and applies to the unimproved value of the land only.
Your principal place of residence is exempt from land tax, but vacant land that is not your primary residence is fully assessable. This means if you purchase land as an investment or are holding it while you plan your build, you will likely be liable for land tax from the first year of ownership. The rates are progressive, meaning the more land you own (by total value), the higher the rate applied.
Victoria also applies a vacant residential land tax surcharge on residential land in certain areas that has been vacant for more than two years. This additional charge is designed to encourage development and housing supply. If you purchase residential-zoned land and do not build within two years, you may face this surcharge on top of standard land tax. Understanding these ongoing costs is essential for accurate budgeting and investment analysis.
Buying land off the plan in a new housing estate is one of the most common ways to purchase vacant land in growth areas around Geelong, Melbourne, and regional Victoria. Off-the-plan purchases involve signing a contract and paying a deposit for a block of land that has not yet been titled, meaning the subdivision and civil works are still in progress.
The timeline between signing the contract and settlement can range from a few months to over two years, depending on the stage of the development. During this period, property values and lending criteria can change, which creates both opportunities and risks for buyers. If values increase, you benefit from instant equity. If values decrease or lending policies tighten, you may face a valuation shortfall at settlement.
When financing an off-the-plan land purchase, most lenders will provide a conditional approval based on the contract price, but the final approval and valuation are typically completed closer to settlement when the title is registered. This means you should not assume your initial approval guarantees funding at settlement. Market movements, changes in your financial circumstances, or shifts in lender policy could all affect the outcome. Maintaining a buffer in your deposit savings is prudent to cover any potential valuation shortfall.
Navigating the land loan market without broker assistance can be challenging because lender policies on vacant land vary widely. What one lender considers an acceptable block, another may decline outright. A broker who understands the nuances of land lending can match your specific block to the most suitable lender, avoiding wasted time and unnecessary credit enquiries.
Your broker can also help you plan ahead for the construction phase, ensuring the land loan you choose today can be efficiently converted or refinanced into a construction loan when you are ready to build. Planning ahead this way can save thousands of dollars in fees and ensure a smooth transition from land ownership to building your new home. At Mortgage & Finance Advisory, we help clients across Geelong, the Surf Coast, Melbourne, and regional Victoria with land purchases of all types. Call us on 03 9020 2699 for expert guidance.
Some lenders will approve land loans with a 10% deposit for residential-zoned blocks in established areas or approved housing estates. However, you will need to pay lenders mortgage insurance, which can be more expensive for land loans than standard home loans. Your broker can identify lenders that offer higher LVR land loans and compare the total costs including LMI to help you decide whether purchasing now or saving a larger deposit is more cost-effective.
There is generally no lender-imposed time limit on how long you can hold land before building. However, if you purchased through a land and construction package, there may be a sunset clause requiring construction to commence within a specified period. From a practical perspective, holding land without building means ongoing costs including loan repayments, council rates, land tax, and maintenance with no rental income to offset them. Some new estates also impose building covenants requiring construction to begin within two to three years of settlement.
Stamp duty on vacant land is calculated the same way as on improved property: based on the purchase price or market value. However, because land prices are typically lower than improved property prices, the absolute stamp duty amount is usually less. First home buyers in Victoria may be eligible for stamp duty exemptions or concessions on vacant land valued below certain thresholds, particularly if they intend to build their first home on the land.
Yes, if you have sufficient equity in your existing property, you can use it as security for a land purchase. This can be done by increasing your existing mortgage or taking out a separate loan secured against your home. Using equity from an existing property can eliminate the need for a separate land loan entirely, potentially giving you access to better interest rates and terms. Your broker can calculate your available equity and advise on the most efficient way to structure the purchase.
Our experienced brokers compare options across 60+ lenders to find the right solution for your situation.
Director & Senior Finance Broker
With years of experience in mortgage broking and finance, Melanie helps clients across Geelong, the Surf Coast, Melbourne and regional Victoria navigate the complexities of home loans and business finance. Contact our team on 03 9020 2699.
