Simple hacks to secure a land loan in Frankston

Buying vacant land in Frankston means working with lenders who treat your purchase differently to an established property.

Most lenders consider land purchases higher risk than buying a house already on a block. You will generally need a larger deposit, face stricter lending criteria, and encounter fewer lenders willing to provide finance. The difference matters because it affects how much you can borrow, which lender products you can access, and how long your approval process takes.

Why lenders treat land purchases differently

Lenders assign higher risk to vacant land because the property generates no rental income and has no dwelling to secure their loan against. A block in Frankston South near Olivers Hill or an acreage parcel in Langwarrin carries the same restriction from a lender's perspective: no structure means no tenant and no immediate utility for the buyer to live in. If a borrower defaults, the lender must sell bare land, which typically takes longer and attracts fewer buyers than an established home.

Most lenders cap loans for vacant land at 80% of the purchase price or valuation, whichever is lower. Some reduce that further to 70% or decline land purchases entirely. This means you will need a deposit of at least 20% to 30% of the land value, plus funds to cover stamp duty, legal fees, and other settlement costs. Consider a buyer looking at a coastal block close to the Frankston foreshore. If the land is valued at the current market rate for that location, a 20% deposit requirement means the buyer needs that amount in genuine savings or equity, along with separate funds for transaction costs.

Which lenders provide finance for vacant land

Not all lenders on a broker's panel will approve finance for land purchases. Major banks typically have dedicated land loan products, but each applies different criteria regarding minimum lot size, intended use, and location zoning. Regional banks and specialist lenders may offer more flexible terms but often at higher interest rates.

The lender's main concern centres on your intention for the land. If you plan to build within a defined timeframe, typically 12 to 24 months, some lenders treat your application more favourably and may structure the loan as the land component of a construction package. If you intend to hold the land without immediate building plans, fewer lenders participate and those who do often price the loan at a higher rate or apply stricter deposit requirements.

In our experience working with Frankston buyers, land in established subdivisions like those near Bayside Shopping Centre or within newer estates closer to Skye tends to attract more lender interest than rural or semi-rural acreage further south toward Somerville. Zoning plays a role, as does access to services like water, sewerage, and sealed roads.

The loan to value ratio and why it matters for your deposit

Loan to value ratio measures how much you are borrowing compared to the property's value. For established homes, lenders commonly approve loans up to 95% LVR when lenders mortgage insurance is paid. For vacant land, that ceiling drops to 80% LVR in most cases, and LMI is either unavailable or prohibitively priced.

If you are purchasing land with the intention to build, you may be able to structure your finance as a single construction loan covering both the land and the build. This approach sometimes allows a higher LVR because the lender assesses the completed property value rather than the land alone. However, you still need to settle the land purchase first, which means fronting the deposit and costs before construction begins.

A 20% deposit on land means your borrowing capacity must also support the remaining 80% based on your income and existing commitments. If your borrowing capacity sits below what you need, the shortfall must come from savings or equity in another property.

Loan features and interest rate structures

Most land loans operate on a variable rate structure. Fixed rate options exist but are less common, and lenders that do offer fixed rates on land purchases often limit the fixed term or apply a higher margin than their standard owner occupied home loan rates.

Offset accounts and redraw facilities are typically available, though some lenders restrict these features on land loans. If you plan to hold the land for an extended period before building, an offset account linked to your everyday banking can reduce the interest you pay while keeping your funds accessible.

Interest only repayments are occasionally available for land loans, particularly if the land purchase is part of a construction project. Lenders may allow interest only during the build phase, switching to principal and interest once the dwelling is complete. This structure reduces your repayment burden while construction is underway but requires clear evidence of your building timeline and council approvals.

How your building intention affects loan approval

Lenders distinguish between land you intend to build on soon and land you are holding without immediate construction plans. If you can demonstrate a clear building intention through planning permits, builder contracts, or detailed plans, lenders view the purchase as lower risk and may approve higher borrowing amounts or offer more favourable interest rates.

Consider a buyer purchasing a block in Seaford with plans to build within 18 months. The buyer provides council planning approval, a signed builder contract, and a construction timeline. The lender treats this as a construction project and structures the loan accordingly, approving an 80% LVR on the combined land and build cost rather than limiting the loan to 80% of the land value alone. The buyer still needs to settle the land first but can draw down the construction funds progressively as the build advances.

Without a clear building intention, the same block is assessed purely as a land loan. The buyer faces the same 80% LVR cap, but that cap applies only to the land value. The loan structure is simpler, but the borrowing amount is lower and the interest rate may be higher.

Preparing your application for land finance

Lenders assess land loan applications using the same responsible lending criteria as any other home loan application, but they scrutinise deposit source and borrowing capacity more closely. Genuine savings must be demonstrated, typically requiring three months of account statements showing regular savings behaviour. Gifted deposits from family are sometimes accepted but often require a statutory declaration.

Your borrowing capacity must support the loan amount based on your income, employment stability, and existing debts. Because land purchases often require larger deposits, many buyers use equity from an existing property to fund the purchase. If you are considering this approach, your current property must have sufficient equity and your income must service both the existing mortgage and the new land loan.

If you are a first home buyer, check whether your land purchase qualifies for state government concessions. Vacant land purchases generally do not attract the First Home Owner Grant unless you are building a new home, but stamp duty concessions may apply depending on the land value and your intended use.

What happens after settlement

Once you settle on the land, your loan repayments begin immediately. Unlike construction loans where funds are drawn progressively, a land loan is fully drawn at settlement. If you are holding the land without building, you will make principal and interest repayments on the full loan amount from day one.

If your land purchase is part of a construction project, you will need to arrange the construction loan component separately or as part of an integrated package. Some lenders allow you to refinance the land loan into a construction loan once your building approvals are finalised, while others require you to structure both components upfront. Timing matters because switching lenders or restructuring loans after settlement can trigger discharge fees and new application costs.

Call one of our team or book an appointment at a time that works for you. We compare land loan options from lenders across Australia and structure finance based on your building plans, deposit position, and borrowing capacity.

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