First mortgage on vacant land: put a block you own to work for the business

Plenty of business owners have a block of land sitting quietly in the background. It was bought as an investment, kept as a future home site, inherited from a parent, or picked up years ago with a plan that never quite happened. It earns nothing, but it usually carries no debt, and that makes it useful. A private first mortgage can turn that block into business funding without anyone having to sell it.

Vacant land is assessed case by case, and it doesn’t support as much lending as a house. But where the land is well located, properly titled and paired with a sensible exit, it can carry a business loan from $20k to $5m. Our vacant land loans page covers zoning, planning controls and holding costs in depth. This page is for the owner who isn’t developing the land and simply wants it to fund the business.

Which kinds of vacant land can secure a business loan?

Most land with its own title and legal access can be considered. Here’s how the common types compare:

Type of land	How it’s usually viewed	Main question
Registered residential lot in an established area	The strongest land security	Any building covenants or overlays?
Lot in a newer estate, title issued	Good	How many similar lots are for sale nearby?
Lot in an estate, title not yet issued	Can’t be mortgaged yet	When will the plan register?
Rural-residential or lifestyle block	Considered, depends on location	Access, services and buyer demand
Industrial or commercial lot	Good in active precincts	Zoning and surrounding uses
Site where a house was demolished	Treated as land	Any approvals in place, or lapsed?
Large acreage or englobo land	Lower lending	Realistic sale time

That third row catches people out. A registered mortgage has to be registered against a title, and a lot in a new subdivision doesn’t have one until the plan of subdivision is registered. Until then, the land can’t secure a first mortgage, however much you’ve paid for it.

What will we want to check about your block?

Before you enquire, gather what you can on these points. None of them needs a professional report.

• The title. A title search shows the registered owners and other registered interests such as mortgages, easements, covenants, leases and caveats. In New South Wales the Torrens register is now the official record, so the search is what counts.
• Zoning. Your council’s planning scheme or the state planning portal shows the zone and any overlays such as flood, bushfire or heritage.
• Access. Legal road frontage, or a registered right of way if the block is behind another.
• Services. Whether power, water and sewer are connected or available at the boundary.
• Rates and land tax. Whether anything is overdue, because overdue amounts may need clearing at settlement.

The answers shape how much can be lent and how quickly. A residential lot with services in an established suburb is a very different proposition from a bush block on a dirt track, even if both are worth the same on paper.

How much can vacant land support?

Less than a house of the same value, for good reasons. Land has a smaller pool of buyers, it takes longer to sell, and it produces no income to fall back on. Our lending ceilings are up to 80% of value on residential security and up to 70% on commercial, with lower lending on large acreage, and vacant land is assessed conservatively within those limits.

There’s no sworn valuation. We assess the land ourselves, so there’s nothing for you to arrange.

Two ways to raise more:

1. Add another property. Offering a house, unit or commercial property alongside the land strengthens the whole loan. See using multiple properties as security.
2. Borrow less than you could. A modest loan against a good block is an easy yes.

Why does capitalised interest suit land?

Because land doesn’t pay its own way. Interest is capitalised for up to 6 months, so there are no repayments in that period, and the business doesn’t have to find monthly payments for a block that earns nothing. The balance grows during that time, so the exit has to cover it, but your cash stays where it’s needed.

Holding costs are worth a conversation with your accountant. The ATO says deductions for expenses of holding vacant land incurred on or after 1 July 2019 generally can’t be claimed, with exceptions that include land used, or available for use, in carrying on a business. How the interest on a business loan secured by land is treated depends on what the money is used for and on your structure, so get advice before you borrow.

Illustrative example: an inherited block funds a workshop fit-out

A Ballarat electrical contractor inherited a 900 square metre residential lot from his father, fully serviced, with no debt. His business has outgrown its premises and needs $220k for a new leased workshop fit-out and two vans before a large maintenance contract starts.

Illustrative: the lot is assessed at around $400k. A first mortgage of $230k covers the fit-out, the vans and costs. Interest is capitalised for the first 6 months, so the business carries no repayments while the contract ramps up. His exit has two paths: a bank refinance once the contract income shows in his accounts, or selling the lot, which he’d been considering anyway. The open term means he can repay from either the moment it lands, without a penalty. Figures are illustrative only.

If you hold land like this, check your loan in about a minute.

Should you borrow against the land or sell it?

Selling releases all the equity with no new debt, but it takes time, may trigger capital gains tax, and can mean accepting less if you’re in a hurry. Borrowing is quicker and keeps the land, but adds a cost and needs an exit. Our comparison of borrowing against property vs selling it sets the trade-off out properly.

Many owners do both: borrow now to meet the business need, and sell the land in their own time, on their own terms, as the exit.

When isn’t land the right security?

• When the title hasn’t issued. Wait for registration or use other security.
• When you plan to build on it. That’s construction or development funding; see our land bank loans page for land held ahead of a project.
• When the only exit is the land selling quickly in a thin market. Build a longer timeframe into the plan.
• When the purpose is personal. These loans are for business purposes only.

Holding land with no debt on it? See what it can do

A block that’s been sitting idle can be one of the most useful things a business owner has, because it’s often completely debt-free. If you’d like to know what yours could support, the quickest step is to ask.

The loan check takes about 60 seconds and there’s no credit check involved in finding out. Your details go to one direct lender and stay there; they aren’t passed around to other funders. A specialist reviews the land, your business purpose and your exit, and calls you to talk it through. Please describe the block accurately, including zoning and access if you know them, so we can answer properly first time.

Find out what your land can raise →