Common Mistakes When Buying Vacant Land with a Loan

Land Loans Carry Different Risk Weightings Than House Purchases

Vacant land purchases are treated as higher-risk assets by lenders, which means your borrowing capacity for land alone will typically be 15 to 20 per cent lower than for a completed dwelling. Under APRA's Prudential Standard APS 112, lenders apply higher risk weightings to land-only exposures, which increases the capital they must hold and reduces how much they're willing to lend you. This matters particularly for periodontists who may be comparing land purchase options against buying an established property or house-and-land package.

Consider a periodontist purchasing land in a growth corridor with plans to build within two years. At a $400,000 land value, borrowing 80 per cent LVR without LMI would require a $320,000 loan. Because the land has no dwelling, lenders assess the loan using a lower serviceability multiple and may cap the LVR at 70 or 75 per cent instead. That could mean needing a deposit of $120,000 rather than $80,000, with the shortfall addressed through additional savings, equity from an existing property, or a guarantor arrangement. The same periodontist purchasing a completed home for $700,000 would access standard residential lending terms without the land-only penalty.

Many Lenders Won't Lend on Land Without a Construction Contract

Some lenders will only approve a land loan if you provide a signed building contract at settlement or commit to commencing construction within 12 months. Others will lend on land alone but cap the LVR lower than they would for land with an attached build. If you're buying land with the intention to build later when your financial position improves or when you've finalised design plans, this restriction can lock you out of multiple lenders before you've even applied.

We regularly see periodontists who want to secure land in a preferred location now and defer the build for 18 to 24 months while they complete a specialist placement or wait for a practice partnership to formalise. In that scenario, a lender requiring immediate construction commitment won't be suitable. Instead, you'd approach a lender that permits land-only purchases without a construction timeframe, though you'll likely face a lower maximum LVR and slightly higher interest rate to reflect the lender's increased holding risk. Knowing which lenders offer land-only products and under what conditions changes which properties remain viable for your timeline.

LMI Premiums Are Higher and Some Insurers Won't Cover Land at All

When your LVR exceeds 80 per cent, lenders mortgage insurance applies. For vacant land, the LMI premium is calculated at a higher rate than for residential dwellings, and some LMI providers exclude land-only purchases altogether. That means fewer lender options once you move above 80 per cent LVR, and the premiums you do encounter can be 30 to 50 per cent higher than the equivalent premium on a house purchase at the same LVR.

Certain lenders within the major bank panel offer LMI waivers for dentists up to 90 or 95 per cent LVR on residential purchases, but those waivers typically do not extend to land-only transactions. If you were planning to use a professional LMI waiver to avoid the premium cost, you'll need to confirm whether your lender applies that benefit to land or restricts it to dwellings only. For periodontists purchasing land with a lower deposit, this distinction directly affects both the upfront cost and the range of lenders you can access.

Stamp Duty Concessions Differ Between Land and Dwellings in Most States

First home buyer stamp duty relief in most jurisdictions applies different thresholds and concession rates to vacant land compared to completed homes. In New South Wales, the first home buyer concession provides full exemption on established homes valued up to $800,000, but for vacant land the exemption applies only up to $350,000 with a sliding concession to $450,000. In Victoria, the first home buyer exemption applies up to $600,000 for homes but does not apply separately to land purchases unless you're building.

If you're purchasing land in Queensland under the first home vacant land concession introduced from 1 May 2025, full transfer duty relief applies with no price cap, but only if at least one applicant is an Australian citizen or permanent resident for agreements entered from 1 August 2026. In South Australia, stamp duty relief is available on vacant land for first home buyers with no property value cap for contracts from 6 June 2024, but only if you intend to build. Understanding which concessions apply to land in your state, and whether they require a construction commitment, affects both your upfront settlement cost and your lender's valuation of the transaction.

Settlement Costs for Land Include Infrastructure Charges You Don't Pay on a House

When you settle on vacant land, you're responsible for infrastructure contributions and utility connection fees that don't appear on an established home purchase. Depending on the local government area and the stage of subdivision, these can include water and sewer connection fees, stormwater levies, and roads-to-recovery contributions. In some growth areas, total infrastructure charges can reach $20,000 to $40,000 and are payable at settlement or prior to commencing construction.

A periodontist purchasing a titled lot in a new estate may find that water connection alone costs $4,000, sewer connection another $3,500, and council infrastructure levies a further $8,000. These costs are in addition to stamp duty, conveyancing, and loan establishment fees. Because lenders base your borrowing capacity on the land value and do not typically lend additional funds to cover infrastructure charges unless they're rolled into a construction loan, you need those funds available in cash at settlement. Failing to budget for them upfront is one of the most common ways land purchases stall between contract and settlement.

Offset Accounts and Redraw May Be Restricted on Land Loans

Some lenders do not offer full offset accounts on land-only loans, or they restrict redraw access until construction commences. If you're used to running your income through an offset to minimise interest, or you rely on redraw for liquidity, those features may not be available on the loan product your lender offers for land. This affects both your ongoing interest cost and your access to surplus funds during the holding period before you build.

For periodontists holding land for 12 to 24 months before construction, the ability to offset your transaction account balance against the loan can reduce interest by several thousand dollars annually. If your lender does not offer offset on the land loan, you may need to compare the benefit of switching to a lender that does against any difference in interest rate or establishment fee. We've structured home loan packages where the land component is held with one lender offering offset, and the construction loan is refinanced or topped up with another once the build contract is signed, preserving flexibility without sacrificing features.

Call one of our team or book an appointment at a time that works for you. We'll identify which lenders offer the LVR, features, and construction flexibility that align with your land purchase and build timeline, and structure the application to keep your options open as your plans develop.

Frequently Asked Questions