Land loans finance the purchase of vacant land for building, investment, or future development. This comprehensive guide covers everything you need to know about buying land in Australia including rates, requirements, and strategies.
What is a Land Loan?
A land loan finances the purchase of vacant land without an existing dwelling.
Common uses: ✅ Buy land to build your dream home ✅ Buy land as investment for future development ✅ Purchase rural land or acreage ✅ Secure land before development approval ✅ Land banking for future use ✅ Rural/lifestyle property
Key differences from home loans:
- Higher interest rates
- Lower LVRs (60-80% max)
- Larger deposits required (20-40%)
- More stringent approval criteria
- Seen as higher risk by lenders
Land Loan Rates & Costs 2025
Interest rates are higher than standard home loans:
Bank land loans:
- Residential land (approved to build): 6.5-8.5% p.a.
- Rural/vacant land (no plans): 7.5-10% p.a.
- Premium to standard home loan: +0.5-2% p.a.
Private land loans:
- Standard: 9-15% p.a.
- Quick settlements: 12-18% p.a.
Comparison:
- Standard home loan: 6.0-6.5% p.a.
- Residential land loan: 6.5-8.5% p.a.
- Vacant land loan: 7.5-10% p.a.
- Premium: 0.5-3.5% more than standard
Why higher rates?
- No dwelling for security
- Can't rent it out (no income)
- Higher default risk
- May take years to build
- Land values more volatile
How Land Loans Work
Loan to Value Ratios
Maximum LVR varies by land type:
Residential land with approved building plans:
- Best case: 80% LVR (20% deposit)
- Standard: 70-75% LVR (25-30% deposit)
- Requirements: Plans approved, ready to build
Vacant residential land (no plans yet):
- Standard: 65-70% LVR (30-35% deposit)
- Some lenders: 60% max
Rural/acreage land:
- Standard: 60-70% LVR
- Large acreage (50+ acres): 50-60% LVR
Example $400,000 land:
- 80% LVR: Borrow $320k, deposit $80k
- 70% LVR: Borrow $280k, deposit $120k
- 60% LVR: Borrow $240k, deposit $160k
Serviceability Requirements
Banks assess your ability to pay:
Standard assessment:
- Your income (salary, business income, etc.)
- Existing debts and commitments
- Living expenses
- Interest rate buffer (usually +3%)
No rental income:
- Can't claim rental income (it's vacant land)
- Must service from personal income alone
- Harder to qualify than investment property
Example:
- Borrowing $300,000 for land
- Rate: 7.5% + buffer 3% = test at 10.5%
- Repayment test: $2,753/month
- Need income to support $2,753 + living + other debts
Interest-Only vs P&I
Most land loans are interest-only initially:
Interest-Only (most common):
- Lower monthly payments while vacant
- Pay only interest, no principal reduction
- IO period: Usually 1-5 years
- Plan to build then convert to P&I
Example $300k @ 7.5% p.a.:
- Interest-only: $1,875/month
- P&I (30 years): $2,098/month
- Saving: $223/month while holding land
Principal & Interest:
- Available but less common
- Pay down loan while holding land
- Higher monthly payments
Bank vs Private Land Loans
Bank Land Loans
Advantages: ✅ Lower rates (6.5-10% p.a.) ✅ Higher LVRs (up to 80%) ✅ Longer terms (25-30 years) ✅ Established processes
Requirements: Good credit score (650+) Stable income Strong serviceability Approved building plans (for best rates) 20-40% deposit Longer approval time (3-6 weeks)
Best for:
- Buyers with strong financials
- Have building plans approved
- Want lower ongoing costs
- Can wait for approval
Private Land Lenders
Advantages: ✅ Flexible approval criteria ✅ Fast approval (1-2 weeks) ✅ Credit issues accepted ✅ No building plans required ✅ Asset-focused lending ✅ Creative solutions
Trade-offs: **Higher rates (9-15% p.a.) **Lower LVRs (60-70%) **Larger deposits (30-40%) **Shorter terms (1-3 years typically)
Best for:
- Quick settlements needed
- Credit issues
- Unusual land (large acreage, rural)
- No building plans yet
- Banks declined
Land + Construction Packages
Most land buyers plan to build eventually:
Separate Land & Construction Loans
Two separate loans:
Step 1: Land Loan
- Buy land with land loan
- LVR: 70-80%
- Interest-only while holding
Step 2: Construction Loan (later)
- Apply for construction loan when ready
- Based on land + build cost
- Pay off land loan, use construction loan
Drawback: Two application processes, two approvals
Combined Land + Construction Loan
Single approval for both:
How it works:
- Get approved for land + construction combined
- Settle on land (draw land portion)
- When ready to build (within 12-24 months)
- Construction funds released in stages
Advantages: ✅ Single approval process ✅ Lock in rate for both ✅ Guaranteed construction finance ✅ Streamlined process
Requirements:
- Building plans approved or near-approved
- Start construction within 12-24 months
- Total LVR on finished value: 80-95%
Example:
- Land: $350,000
- Construction: $450,000
- End value: $900,000
- Total LVR: 80% = $720,000
- Deposit needed: $180,000 (20%)
Month 1: Draw $350k for land Months 1-12: Pay interest on $350k only Month 13: Start building, draw construction in stages
Types of Land and Financing
1. Residential Land (Subdivision)
Standard residential blocks in new estates:
Characteristics:
- Fully serviced (power, water, sewer)
- Council-approved subdivision
- Ready to build
- 300-800m² typical
Financing:
- Best LVRs: 75-80%
- Best rates: 6.5-8% p.a.
- Deposit: 20-25%
Timeline:
- Often titles delayed (land not yet released)
- Pay deposit, settle when titles issued
- May be 6-24 months from purchase to settlement
2. Vacant Residential Land (Established)
Existing titled land in established areas:
Characteristics:
- Titled and ready
- May or may not be serviced
- Established suburbs
- Sometimes knockdown opportunity
Financing:
- LVRs: 65-75%
- Rates: 7-9% p.a.
- Deposit: 25-35%
Easier to finance if:
- Close to services
- In good area
- Clear zoning for residential
3. Rural/Acreage Land
Larger blocks outside urban areas:
Characteristics:
- 5-100+ acres
- May not be fully serviced
- Rural zoning
- Lifestyle/farming
Financing:
- LVRs: 50-70%
- Rates: 8-12% p.a.
- Deposit: 30-50%
- Harder to finance
Challenges:
- Fewer lenders
- Lower valuations
- Income/farming plans important
- Distance from services
4. Development Land
Land with development potential:
Characteristics:
- Zoned for development
- May need rezoning
- Potential to subdivide
- Could be worth multiples if developed
Financing:
- LVRs: 50-65%
- Rates: 9-15% p.a.
- Deposit: 35-50%
Need to show:
- Development feasibility
- Planning approval potential
- Timeline and exit strategy
Better option: Development finance (once plans approved)
Land Loan Requirements
What you'll need to apply:
Standard Requirements
Property details: ✅ Contract of sale ✅ Section 32 (vendor's statement) ✅ Title/plan ✅ Zoning certificate ✅ Building plans (if available) ✅ Soil test (if done)
Financial documents: ✅ Payslips (2-3 months) or financials if self-employed ✅ Tax returns (2 years) ✅ Bank statements (3-6 months) ✅ Asset/liability statement ✅ Proof of deposit savings
ID & verification: ✅ Photo ID (license or passport) ✅ Proof of address
Valuation
Bank will value the land:
Valuer considers:
- Recent land sales in area
- Size and location
- Services available
- Zoning and building approval
- Topography and access
Important:
- Land valuations conservative
- May value below purchase price
- Affects LVR calculation
Example:
- Purchase price: $400,000
- Valuation: $380,000
- 70% LVR on valuation: $266,000
- Not $280k (70% of purchase price)
Building Plans Impact
Having approved plans helps enormously:
Without plans:
- Seen as pure land speculation
- LVR: 60-70% max
- Rates: 7.5-10% p.a.
- Harder approval
With approved plans:
- Demonstrates serious intent to build
- LVR: 75-80% possible
- Rates: 6.5-8% p.a.
- Easier approval
With construction loan package:
- Single approval
- Best rates and LVRs
- Streamlined process
Land Loan Strategies
Strategy 1: Buy Land, Immediate Build
Timeline: 0-12 months
- Get land + construction pre-approval
- Buy land
- Start construction within 12 months
- Complete home within 18-24 months
Financing:
- Combined land + construction loan
- Best rates and LVRs
- Single approval
Best for: Ready to build now
Strategy 2: Buy Land, Build Later
Timeline: 2-5+ years
- Buy land with land loan (interest-only)
- Hold for 2-5 years
- Apply for construction loan when ready
- Build your home
Financing:
- Land loan initially (interest-only)
- Construction loan later (when ready)
- Two separate approvals
Monthly cost: Just interest on land loan
Best for:
- Not ready to build yet
- Saving for construction
- Securing location now
Strategy 3: Land Investment
Buy land as investment for future growth:
- Buy land in growth area
- Hold 5-10+ years
- Value appreciates
- Sell or develop later
Financing:
- Land loan (interest-only if possible)
- Holding costs: interest only
- No income (can't claim rental)
Challenges:
- Negative gearing limited (no depreciation on vacant land)
- Can only claim interest, not principal
- All costs from after-tax income
Best for: Long-term investors with holding power
Strategy 4: Buy, Subdivide, Sell
Development play:
- Buy larger block
- Subdivide into 2-3 lots
- Sell subdivided lots
- Profit from development
Financing:
- Initial land loan
- May need development finance for subdivision
- Sell-down to repay
Example:
- Buy 2,000m² for $600,000
- Subdivide into 3x 660m² lots
- Sell 3 lots @ $350k each = $1,050,000
- Less costs $150k
- Profit: $300,000
Tax Considerations
Land ownership has tax implications:
Investment Land
Deductions: ✅ Loan interest (if investment) ✅ Council rates ✅ Land tax (if applicable) ✅ Maintenance/carrying costs
Cannot claim: No depreciation (vacant land) No building deductions Limited deductions overall
CGT on sale:
- Capital gains tax applies
- 50% discount if held 12+ months
- Payable on profit when sold
Owner-Occupier Land
No deductions while vacant: Cannot claim any costs All costs from after-tax income
Once you build and move in: ✅ CGT exempt (main residence) ✅ No tax on sale (if main residence)
Common Land Loan Mistakes
1. Insufficient Deposit
Thought 10% deposit enough Banks want 20-40% Couldn't proceed
✅ Solution: Save 25-35% deposit before shopping
2. No Building Plans
Bought land without plans Got 60% LVR only Paid higher rate
✅ Solution: Get plans approved before/during purchase
3. Can't Service Loan
Didn't factor in high test rate No rental income to help Application declined
✅ Solution: Calculate serviceability first, ensure income sufficient
4. Underestimating Holding Costs
Thought holding land was cheap Interest + rates + costs = $2,000+/month Couldn't afford to hold
✅ Solution: Budget for all costs, have buffer
5. Low Valuation
Paid $400k Valued at $350k LVR calculated on $350k = need more deposit
✅ Solution: Get land valued before committing, or build in buffer
Holding Costs for Vacant Land
Budget for these ongoing costs:
Financial costs:
- Loan interest: $1,500-3,000/month (depends on loan size)
- Council rates: $1,000-2,500/year
- Land tax: $0-5,000/year (if applicable, varies by state)
Maintenance:
- Mowing/slashing: $50-200/month
- Fencing: One-time $5,000-20,000
- Insurance: $300-800/year (public liability)
Example $300,000 land loan:
- Interest @ 8% IO: $2,000/month
- Council rates: $2,000/year = $167/month
- Mowing: $100/month
- Total: $2,267/month ($27,200/year)
No rental income to offset!
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