Last reviewed on 13th October 2023 by Martin Alexander (Mortgage Advisor)
Getting a land mortgage is challenging at the best of times, simply due to the lack of lenders in this area. However, mortgages for land do exist, and there are lenders in this market.
Buying land can allow you to build the home of your dreams or secure a plot to develop and make a tidy profit. Land can be a great asset as it’s highly sought after and always on the decline, simply because it’s impossible to make more!
Intentions for buying land are always different, so the best mortgage choice will vary for each applicant. For a more tailored answer, you can make an enquiry with an advisor at any time.
Can I get a mortgage for land?
Yes, you can get a mortgage for land, but the application process differs from a residential mortgage. This is because a regular mortgage would involve buying a property and the land it’s built on. A home is yet to be built when buying land alone, so lenders view the proposition as high-risk.
Lenders will want to know what you intend to do with the land once you purchase it. For instance, if you’re building a home, lenders will want to see your plans as part of your proposal. For this reason, trying to get a mortgage on a plot of land with no intention to build is very difficult.
What mortgage options are available?
Land comes in all shapes and sizes, so you’ll need a specific type of mortgage depending on the type of land you want to buy. Choosing the right mortgage depends on what you wish to do once you’ve purchased the plot.
- Self-build mortgages – This could be suitable if you want to buy a plot of land to build your own home. Lenders will want to see a full proposal along with planning permission. If approved, funds are released at each stage of the build.
- Agricultural mortgages – Specifically for buying agricultural land for a business, such as farming. You’ll still need planning permission to purchase an agricultural plot of land.
- Woodland mortgages – If you want to buy an area of woodland, it’s possible. However, lenders will want to see a plan of how you intend to make it profitable.
- Development finance – This is designed for large property development ventures, such as building multiple properties. You’ll need a complete business plan in addition to planning permission.
What types of land can I get a mortgage on?
Depending on the type of land you wish to purchase, the finance and lenders available will vary, as will the rates offered.
See the table below:
|Land type||Are lenders available?||Interest rates|
|Residential plot (to live)||Multiple lenders available||Average/high|
|Commercial plot (develop)||Multiple lenders available||Average/high|
|Brownfield land||Yes, but a few||High|
|Greenbelt land||Very rare||Very high (if offered)|
|Agricultural or leisure||Yes, but a few||High|
|Remortgaging land||Multiple lenders available||Average/high|
Will I need planning permission for a land mortgage?
Having planning permission on a plot of land will ensure access to most lenders and can unlock the best rates. This is because planning permission adds even more value to the plot and clearly outlines the intention of what the land will be used for.
If you apply without planning permission, you’re likely to be declined. A plot of land that can’t be built on isn’t attractive to lenders as they want to be sure the loan is repaid. Planning permission is the most essential part of an application when applying for a land mortgage.
On the other hand, a plot of land with planning permission to build several dwellings is a money machine as far as lenders are concerned and can result in a mortgage being easily secured. Lenders view land as a risk, but you can overcome that with a well-planned proposal. Even if can’t get a mortgage, a bridging loan could be a more viable short-term option.
Outline Planning Permission (OPP)
Outline planning permission (OPP) is an agreement in principle from your local planning department. An OPP agrees in principle that a dwelling or multiple dwellings can be built on a plot of land. OPP is usually valid for three years and must be renewed once lapsed.
OPP must meet the following criteria to be eligible for a land mortgage, but full planning permission is preferred:
- The overall layout of the proposed dwelling(s)
- The appearance of the dwelling(s)
- Upper and lower limits for the height, width, and length of the dwelling(s)
- Site access details
- Landscaping proposals
Full Planning Permission (FPP)
Full Planning Permission (FPP) is usually valid for five years. FPP applications must also meet the above criteria to qualify for land mortgages. In addition, FPP applications must include detailed scale drawings of the dwelling(s) and contain information regarding any planning issues.
Having FPP on your plot of land makes your proposition much more viable for lenders. This is usually the difference between being approved or declined. FPP also increases the value of the land, which can increase the amount lenders will offer you.
Regardless of planning permission, lenders will arrange for a surveyor to assess the land. This ensures lenders are fully aware of the type of land and its potential. Lenders will also be made aware of any risks involved with the plot.
How does a land mortgage work?
Lenders release funds in stages to protect their capital. Inspections can protect lenders from further loss if a project doesn’t go to plan. If you require finance at different project stages, it can involve additional costs. This is due to the extra time and administration involved in inspecting the property.
Surveyors will also inform lenders of the values involved at each stage of the process. This is so lenders have a clear financial viewpoint of how much they should be lending.
Once the build is complete, the lender may offer a permanent mortgage or give you the option to remortgage and repay the outstanding loan.
How much deposit will I need?
You’ll typically need a 25% deposit to get a mortgage for land. Some lenders will require more, as it depends on the applicant, the plot of land, and the plan behind it.
If your application is deemed high-risk, you could require a much larger deposit. In comparison, if your application contains a precise, profitable venture, you could be accepted with a much lower deposit.
Land mortgage rates
The lowest rates usually start at 5% and go up to 7%. The rates you’re offered will also depend on the type of land you’re buying and its intended use.
Lenders will assess your property experience, credit score, and affordability. The entire assessment will then allow lenders to present you with an offer. Mortgages for land are usually a lot shorter than conventional mortgages and typically don’t surpass five years.
What fees can I expect?
As with any mortgage, you’ll incur fees that you’ll need to consider before applying, such as:
- Application fees: Fees are paid to a broker and lender to cover the cost of your application.
- Valuation fees: A valuation fee is paid to the lender so that a qualified surveyor can value the land. A lender can’t offer a mortgage without valuing the land in its raw form. Valuation fees may increase, where funds are released in stages and surveyors are instructed several times throughout the development.
- Legal fees: You will need to pay a solicitor for the conveyance of the land. Lenders may insist that you also cover the cost of their solicitor in addition to yours. A lender’s solicitor will be instructed to place a charge on the land or existing property and register this with the land registry.
Can I remortgage land?
Yes, you can remortgage land. When you first get a mortgage, the initial rate prior to completing the build can be high. Once the build is complete, it’s advised to remortgage the property, as you should have access to mortgages across the open market.
Rates for remortgaging are subject to the borrower’s circumstances and the criteria of the property.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.