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Mortgages for Land

Can I get a mortgage for land? Get the right advice on this here.

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 21st January 2020 *

We’re often asked ‘can you get a mortgage to buy land?’ and the answer, of course, is yes. That said, it’s a totally different kettle of fish to buying a residential property - so in this piece, we’re going to outline how land finance works and how to go about getting a mortgage to buy land in the UK.

Need a mortgage for buying land, or a little advice? Get in touch - some of the friendly land financing experts we work with may be able to help you

Here’s what we’ll cover in this article:

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Land Mortgages in the UK: Can I get a mortgage to buy land? How does it work?

We often hear questions like “can you buy land with a mortgage?” and “what is a land mortgage?” so we’ll start with the basics...

As may be obvious - a land mortgage is a loan that allows you to buy land.

Land mortgages can be used for everything from agriculture to commercial development or industrial buildings. Though they’re more common in rural areas, land mortgages can be found on urban sites too. You can get a mortgage for land only, or for land that already has property on it.

As such, there’s a massive amount of variety from one land mortgage to the next. It all depends on where you’re buying and what you plan to use the land for.

Do banks provide mortgages for land?

As you may also have imagined, land mortgages are a more specialised category that many high-street lenders aren’t really set up to finance. Speaking of lenders - there are far fewer lenders in this space, but the ones who do are usually very specialised.

There are some high-street outfits willing to get involved, but much of the volume is done by specialist land mortgage companies or private banks - with greater appetites for creative deal-making and risk-taking,

Getting a mortgage for land isn’t impossible. A good broker can help you to find the right lender for you, if you’re eligible.

Why buy land?

Most people would agree that land in the UK is a very strong asset. Due to environmental protections and existing ownership structures - the right kind of land is in short supply and it’s not like they’re making any more of it.

People choose to buy land for many reasons. Investors and developers buy land to develop for commercial purposes. Self-builders, meanwhile, seize the opportunity to build their dream property.

How to get a mortgage on land

Customers often ask us “how do I get a mortgage for land?” Speaking to a whole-of-market broker is always a good start, as this will give you access to all of the best deals you qualify for. But first you should consider how you want to go about buying the land...

Buying land at auction

A high volume of land is sold through auction, a very different process to how most residential property is sold.

Generally, a 10% deposit is required on the day, along with the rest of the balance (either cash or through mortgage financing) in the next 28 days.

If you don’t have the rest of the money or the mortgage financing in place by the 28th day, you could lose your deposit and be liable for other fees and charges - so it’s important to sort out your financing before making the commitment at auction.

Should you need to raise the funds quickly, a bridging loan might be a more viable option than a mortgage as they are typically much faster to arrange.

Buying via land agents

An alternative to buying at auction involves land agents. Land agents are similar to estate agents and commercial property agents - matching up buyers and sellers.

Like most property agents, they usually work on behalf of the seller to get the highest sale price, and they want to be sure that you have the financing in place before closing a deal. In such arrangements, mortgages in principle are important.

How much deposit do you need to buy land?

This will depend largely on where and what you’re buying - and what you plan to do with the land.

As a rule of thumb - land mortgage deposits are usually higher than those on conventional residential property. You’d likely be looking at a minimum of a 30% deposit, depending upon your circumstances.

What about land mortgage rates?

Typically, land loan mortgage rates are higher than those for residential mortgages. A number of things can affect rates.

These include:

  • Where you’re buying, what you’re intending to do with the land and how you’ll exit the finance
  • The kind of lender you’re considering
  • Your loan to value (LTV) ratio and the status of land; e.g does it have outline planning or full planning permissions?
  • Your personal credit history
  • Your business’ trading history and the industry you’re in (if relevant)  
  • The overall size of the loan

How do I get a better rate on a land mortgage?

There’s a couple of things that you can do….

Improve your credit

Take steps to improve your personal and business credit before making your application.

Lower your expenses

Many lenders will stress test your financing against possible future rate rises. Cutting out unnecessary expenses for both yourself or your business.

Put up or increase your collateral

A lender will see your application as lower risk if your debt can be secured against another tangible asset, such as a property or asset you own and hold sufficient equity in. But be careful with this as defaulting on your mortgage payments could result in the repossession of the security you’ve put up. Make an enquiry if you have any concerns about this.

Increase your deposit size

The larger your deposit, the lower your LTV and the lower your perceived risk.

Find a better deal

Find a specialist lender who better understands what you’re trying to achieve. An expert land mortgage broker might be able to help - make an enquiry to speak with one today.

Can you get a mortgage for land if you have bad credit?

Yes, but it may be harder to find a lender. It really depends on what you’re planning to do with your land purchase, whether the land has planning permission or not, and how much of a deposit you can raise.

There are lenders who will consider offering a mortgage to someone with bad credit. It depends on how long ago the incident took place, the severity and what the final outcome was.

Can you mortgage land without a deposit?

Possibly. With the right lender and enough collateral, you may be able to reduce your deposit size, or forego a deposit entirely. It could be tricky, depending upon the industry you’re in - and securing debts against your assets is not something to be taken lightly.

Speak to one of the experts we work with if you’re considering this option.

Can I get a mortgage on land without planning permission?

Yes, but it could be a lot harder, as some lenders just won’t lend for land without planning permission at all.

Mortgages can be broadly divided into two categories - those for land with planning permission, and those without it. It’s usually much easier to get a mortgage on land that has permission - because the difficulty of obtaining permission creates a lot of uncertainty in the minds of lenders.

You’ll likely be offered a smaller LTV, up to 65% at the best of times. A lender may also want you to put up collateral, and to have it in writing that the local authority will be willing to grant permission, once the necessary steps are taken.

You’ll also want to have a very strong business plan, an experienced team and preferably a track record of having done something similar in the past. It’s probably not going to be easy.

If you’d like any advice about this, get in touch and one of the experts we work with may be able to advise you.

Applying for planning permission

If you don’t have planning permission, you’re probably going to need it before doing anything significant with your property.

Depending on what your plans are, this might be the more difficult and prolonged part of the process.

You’ll probably need planning permission to:

  • Build on a property
  • Modify an existing property (i.e. building an extension)
  • Change what the land is being used for

If you’re not sure if you need planning permission, check with your local authority. It’s not a good idea to proceed without getting the go-ahead first.

What other land mortgage options do I have?

There are a number of possible ways you can take out finance to purchase land, including…

Read on to find out more about these options or make an enquiry to speak with an expert and find out what other alternatives might be available to you.

Getting a bridging loan whilst you get planning permission

Bridging loans could be another option in this kind of deal. This could tide you over whilst you go about securing the planning permission   

Careful though, they’re usually offered at a far higher rate than a mortgage, and lenders will always want to see a viable ‘exit strategy’ before offering you one. In this case, the exit strategy would be either refinancing the debt onto a mortgage or the sale of the land afterwards.

Do I need a commercial mortgage for land?

Customers often ask us things like “do I need a commercial mortgage to buy land? and the answer depends on what you plan on doing with the land plot. If you’re planning to develop a commercial property on the plot, then the answer is most likely yes.

Commercial land mortgage rates are typically higher than commercial property mortgages and most lenders will cap the loan to value (LTV) ratio at 50%.

Purchasing land using development finance

If you want to purchase a plot of land for commercial development and have the means and expertise to carry out (or at least oversee) the works yourself, a development finance loan could provide a viable alternative to a commercial land mortgage.

Development finance is a form of short term borrowing which can cover the land acquisition and the subsequent construction works. Most lenders are willing to offer 70-75% of the initial purchase cost and 100% of the construction funds, released in staged drawdowns.

To qualify for development finance, the borrower must evidence a viable exit strategy in advance, which in this case, would usually be the sale of the scheme or a remortgage, i.e. refinancing the debt onto a commercial mortgage based on the post-development value.

Make an enquiry and the advisors we work with will discuss whether it’s the best option for you over the phone.

Can you get a mortgage to buy land and build a house?

If you’re planning to buy land and build a house on it, a conventional residential mortgage won’t cut it. You’ll instead need to apply for a ‘self build’ mortgage. This is a specific kind of mortgage to buy land and build houses.

It works in instalments, instead of a single lump sum. For example - you get the first payment once you’ve bought the land, another one after the foundations are laid, a few more at other intermediate stages, and the last one when the property is complete.

A smaller number of self-build mortgages release the funds in a lump sum, which is useful for certain building projects in which there are large up-front fees to be paid.

Like most land mortgages, self-build rates interest rates are a little higher than on a standard mortgage, and only a minority of lenders will offer these products.

Why self build?

There are a number of potential advantages to self-build mortgages, including...

Build the house you want

Providing planning permission restrictions are followed, self-build allows you to build a house to your exact specifications.

Save on stamp duty

All things being equal, buying a plot of land without a property on it is less expensive than buying a plot with something pre-built. As such, it’s easier to keep your purchase under the £125,000 threshold for stamp duty.

Capital growth

People who build their own houses often find that, when finished, the property is worth far more than the cost of construction and buying the land.

What about farm land mortgages?

Agriculture is an almost entirely land-based business. As a result - buying land for agricultural use is a very popular form of rural land mortgage.

There’s actually a more specific category of agricultural mortgages, which are better suited to farms and agriculture. If you want to learn more about these - take a look at our agricultural mortgage section here.

UK Land mortgage calculators

You can use a mortgage for land calculator, found on many lenders’ websites and online financial hubs, to work out how much you might be able. But remember to treat these figures with a pinch of salt - an online calculator can only give you an outline of what’s possible.

For a better idea, speak to one of the expert mortgage advisors we work with.

Why use a land loan mortgage broker?

There are a variety of specific issues with land mortgages that most normal residential buyers don’t have to deal with.

These include drainage problems, invasive species, access rights, laws around zoning and other things specific to the industry that you’re in.

As a small and specialised sector, finding the right finance for purchase or redevelopment can be hard, time-consuming work. Simply put, there are less land mortgage lenders, many of them are harder to find, and some only operate through brokers.

Additionally, the complexity and perceived risk of the deals involved, can result in longer and more complicated application processes.

A ‘template’ approach tends not to work in a field where each deal can vary so much - instead, every application needs to be properly crafted for the best results.

Whether you need a bridging loan, a mortgage or both - the best way to succeed with your financing is to work with a broker who knows land mortgages in-and-out. They can find the exact lender for your needs.

Get some expert help with your land financing

Call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry online.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 21st January 2020
OnlineMortgageAdvisor 2020 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

Find out more about Commercial Mortgages

Commercial Mortgage Guide