Land mortgages

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Land mortgages

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Last reviewed on 10th June 2022

Getting a land mortgage isn’t easy at the best of times, simply due to the lack of lenders in this area. Nonetheless, land finance does exist and there are lenders in this market.

A mortgage for 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!

Lenders often see land finance as a risky proposition, but that can all be changed with a strong application. Even if you’re unable to secure a land mortgage, a bridging loan could be a more viable short-term option.

Intentions for purchasing land differ and as a result, the best possible route for finance 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, a mortgage for land is possible but the application process is different when compared to a residential mortgage. This is because a regular mortgage would include the purchase of a property, as well as the land it’s built on. When buying land, a home is yet to be built, so lenders view the proposition as high-risk.

Lenders will want to know what your intentions are once you’ve purchased the land. For instance, if you’re building on the land lenders will want to see plans for your proposal. For this reason, trying to get a mortgage on a plot of land with no intentions to build can be difficult.

What mortgage options are available?

The types of mortgages available for buying land include:

  • Self-build mortgages
  • Agricultural mortgages
  • Woodland mortgages
  • Development finance

Each mortgage type can be suitable to buy land. Choosing the right mortgage depends on what you wish to do once you’ve purchased the plot.

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) Number of lenders available Average/high
Commercial plot (develop) Number of 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
Refinancing land Number of lenders available Average/high

Will I need planning permission for a mortgage on land?

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 land and clearly outlines the intention of what the land is going to be used for.

A plot of land that can’t be built on, such as green belt land, isn’t an attractive proposition for lenders. This is why there are so few lenders willing to even assess applications! Sure, green belt land may eventually get planning permission, but a lender could be waiting a number of years before planning permission is granted.

On the other hand, a plot of land that has planning permission to build several dwellings is a money machine as far as lenders are concerned and can result in land finance being secured with ease.

Outline Planning Permission (OPP)

Outline planning permission (OPP) is an agreement in principle from your local planning department. An OPP agrees in principle that either a dwelling or multiple dwellings can be built on the plot of land. OPP is usually valid for three years and once lapsed must be renewed.

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 be eligible 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 a lot more viable for lenders. This is usually the difference between being approved or declined. FPP also increases the value of the land, which can result in an increase in finance available if approved.

Lenders will arrange for a surveyor to assess the land, regardless of planning permission. This is to ensure 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 of land.

Will I need a financial plan?

When applying for land finance, lenders will also request to see a detailed financial plan. A financial plan should contain a projection of costs with details on the build type, construction method, materials and labour cost.

Having a time frame for your project is also recommended. Lenders request these details, as they may not lend on certain materials and will only lend on traditional brick-built properties.

The clearer you are with your intentions, the better lenders will understand your application and give them confidence. Often enough, we speak to applicants who have been declined, simply because their application lacked depth and clarity.

ask a mortgage broker

How does a land mortgage work?

Depending on the scale and type of your project, lenders usually release funds in multiple stages. They may lend at the very first stage on the purchase of the plot and then lend further towards the actual build and continue to finance the build through to completion. In this case, lenders would instruct surveyors to assess each stage before lending further.

Lenders release funds in stages to protect their capital. Inspections can protect lenders from further loss, in the event that a project doesn’t go to plan. If you require land finance at different stages of your project, then this will entail additional costs, simply due to the extra time and administration involved with inspecting the build.

Surveyors will also inform lenders of the values involved at each stage of the process. This is so that lenders have a clear financial viewpoint of how much they should be lending.

Once the build is complete, the lender may then offer a permanent mortgage or give you the option to remortgage and repay the outstanding loan.

How much deposit is required for a land mortgage?

Land mortgages usually start at 20% of the land’s value. There are lenders that may approve land mortgages with smaller deposits. It all depends on the applicant, the plot of land and the plan behind it.

Land mortgage rates

The lowest rates usually start at 3% but on average are offered between 4-4.5%. Furthermore, they will be higher if interest rates are offered monthly. Rates will also depend on the plot of land and its intended use.

Lenders will need to assess the experience of the applicant, in addition to their credit score and affordability. The entire assessment will then give an idea of the rates on offer. Mortgages for land are usually a lot shorter than conventional mortgages and typically don’t surpass five years.

Land mortgage fees

As with any mortgage, you’ll incur fees that you’ll need to consider before applying, such as:

  • Application fees: This is paid to either a broker and/or lender to cover the cost of your application.
  • Valuation fees: A valuation fee is paid to the lender so that the land can be valued by a qualified surveyor. Without valuing the land in its raw form, a lender can’t offer a mortgage. 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 refinance land?

The initial rate whilst the build is ongoing can be high. Once the build is complete, it’s advised to remortgage the property. At the stage of completing the build, you should have access to mortgages across the open market.

Rates for remortgaging are subject to the borrower’s individual circumstances and the criteria of the property.

Land finance specialists

When applying for land finance, the aid of a broker is worth their weight in gold. As we explained earlier in this article, many applicants apply with plans that simply aren’t strong enough for lenders to even consider.

An experienced commercial broker can ensure that your application has depth and can also target the right lenders based on your proposal. You can make an enquiry below to start or simply ask our specialists a question.

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About the author

Mortgage Advisor | More Articles

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.