Common Mistakes When Financing Vacant Land in Richmond

Vacant land in Richmond typically sits at or above the suburb's current median, making deposit and serviceability the first hurdle most buyers face.

Lenders treat vacant land as a higher-risk asset class. You'll need a minimum deposit of 20% to avoid Lenders Mortgage Insurance, and many lenders cap their loan-to-value ratio at 80% regardless of your deposit size. That's different from owner occupied home loans where you can borrow up to 95% with LMI in many cases. The Australian Government 5% Deposit Scheme does not cover vacant land purchases, so government-backed guarantees are not available.

Deposit Requirements for Vacant Land Are Higher

A 20% deposit is the starting point, but some lenders require 30% to 40% depending on whether the land is zoned residential, rural, or mixed-use. Richmond sits within the City of Yarra, where most vacant parcels are residential infill sites or consolidated blocks resulting from demolition. The suburb's two-bedroom house median reached $1,150,000 and three-bedroom house median reached $1,552,500 in the year to September 2026 per Domain, reflecting the premium nature of inner-city land.

Consider a buyer acquiring a consolidated residential lot following demolition. With a purchase price at the suburb's median, a 20% deposit would be required to reach an 80% LVR, the maximum most lenders will extend for vacant land. Settlement costs including stamp duty, legal fees, and registration add another layer of upfront capital. At the higher end of the market, these figures compound quickly.

Serviceability Tests Are Stricter Without a Dwelling

Lenders apply a higher interest rate buffer when assessing your borrowing capacity for vacant land. Where a standard home loan application might be assessed at the actual rate plus a 3% buffer, vacant land loans are often assessed at the actual rate plus 3.5% to 4%. Some lenders also apply a shorter assessment term, treating the loan as if it will be repaid over 20 years rather than 30, which reduces your maximum borrowing capacity.

Richmond's proximity to the CBD, with the suburb sitting just 3 km east along Bridge Road and Swan Street, makes it an active market for land consolidation and townhouse development. Buyers intending to build within 12 months often apply for a construction loan at the same time as the land purchase to demonstrate a clear development timeline. That can improve serviceability, but it also locks you into a builder contract and timeline before settlement on the land, which introduces execution risk.

Lender Panel Restrictions Narrow Your Options

Not all lenders offer vacant land loans. The major banks have internal policies that exclude certain land types, including blocks without town water or sewerage connection, blocks smaller than 300 square metres, or blocks in postcodes flagged for oversupply risk. Richmond itself is unlikely to trigger postcode exclusions, but if you're comparing options across metro Melbourne, smaller lenders and regional banks often have more flexible land lending policies than the majors.

In our experience, buyers who assume their existing lender will automatically approve a vacant land purchase are often surprised when the credit team declines the application or offers a lower LVR than expected. Running a home loan pre-approval specific to vacant land before you sign a contract avoids that outcome. Pre-approval also gives you a firm borrowing limit, which is critical in a competitive market where land parcels in Richmond are tightly held and auctions move quickly.

Interest Rates and Loan Features Are Limited

Vacant land loans typically carry a rate premium of 0.20% to 0.50% above standard variable rate home loans. Fixed rate options are less common, and where they exist, the fixed period is often capped at two or three years rather than the five-year terms available on standard home loans. Offset account functionality is also restricted, with many lenders excluding offset on vacant land loans entirely.

If you're planning to build within 12 to 24 months, the loan will transition to a construction loan and then to a standard home loan once the dwelling is complete. That transition can trigger a rate review, and if your lender's pricing has shifted in the interim, you may not receive the same discount you were offered at settlement. Locking in the post-construction rate structure at the time of land purchase, where possible, removes that uncertainty.

Zoning and Council Approval Affect Lender Appetite

Lenders want certainty that the land can be developed. If the block is zoned residential but requires a planning permit to subdivide or build multiple dwellings, some lenders will decline the application until the permit is granted. Others will lend on the land but apply a higher deposit requirement or lower LVR until the permit is in place.

Richmond's General Residential Zone and Neighbourhood Residential Zone areas each carry different overlays, and the City of Yarra has specific heritage and design guidelines that can extend the permit timeline. Buyers acquiring land with the intent to subdivide or build townhouses should complete a town planning assessment before applying for finance. That assessment identifies whether a permit is required, the likely conditions, and the expected approval timeline, all of which feed into the lender's credit assessment.

Timing the Purchase and Build Avoids Dual Holding Costs

Holding vacant land without an income-generating dwelling means you're servicing a loan with no rental offset. If you're living elsewhere and paying rent or a mortgage on your current home, the dual holding cost can stretch your budget quickly. Interest-only repayments can reduce the monthly cost, but not all lenders offer interest only structures on vacant land loans, and where they do, the interest-only period is often capped at 12 months.

Buyers in Richmond often face a choice: purchase the land now and hold it while finalising design and permits, or delay the land purchase until construction finance is approved and a builder is locked in. The first option gives you control of the site but increases holding costs. The second option reduces holding costs but exposes you to price movement in a tightly held market. Working with a broker who can structure the land loan and construction loan together, with a single application and a clear drawdown timeline, is the most efficient path through that trade-off.

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