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Unlike standard residential mortgages where the loan is secured on a house, land mortgages are concerned with the ground itself. Whether you’re planning to build your dream house, farm the land, or conduct a venture to make money, owning a plot of land is a substantial asset. If you need to raise finance for buying land, many lenders will tell you it’s difficult to obtain unless you have a strong application. We’re here to explain the ins and outs of land mortgages and introduce you to the various lending options you can access depending on your purchasing intentions. And if you decide a land mortgage is right for you, then contact us. When The Bank Says No are expert mortgage brokers that can help you find the best land mortgage deals.
What is a Land Mortgage or a Land Loan?
A land mortgage is a mortgage that you get with the purpose of purchasing a piece of land. Generally, people want to own land so they can build property on it. Similarly, a land loan is a type of financing that you use to buy or refinance a plot of land. A land mortgage doesn’t only enable you to purchase the land but also fund the costs of acquiring the mortgage.
While a land mortgage is the most common in this domain, other types of mortgages for land exist depending on your planned use of the plot once obtained. Different types of land mortgages share basic factors. For one, the lender will demand a charge over the land. Also, you’ll need to put in a deposit.
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Can you get a Land Mortgage?
Yes, it’s possible to obtain a land mortgage. But because the home/estate is yet to be built when purchasing the land, lenders deem the proposition high risk. As such, the application process is different than in a residential mortgage where the property is already built. Reassuring the lender that your investment is low risk is an even more serious matter.
You need to present a solid base for your intended use of the piece of land after purchase, such as showing construction plans if you’re building on the land.
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What types of Land Mortgages are available?
There are several types of mortgages available for purchasing land, including:
- Self-build mortgages
- Agricultural mortgages
- Bridging loans for land
- Planning gain finance
- Commercial mortgage
- Woodland mortgages
What is a Self-Build Land Mortgage?
Since the majority of people looking to purchase a plot of land for the first time are doing it because they want to build their own homes, this type of land mortgage is the most common.
A self-build mortgage, as the name suggests, allows you to purchase a plot of land and finance the cost of constructing a house on it where you yourself will live.
This isn’t possible via a standard residential mortgage because it’s meant to help you own a house that already exists.
Standard mortgages will provide you with the needed money in one go because the lender secures the loan against the house, which exceeds the loan’s worth.
This sort of security is unattainable in self-build mortgages because there’s only land without a house. Unless you pay the lender, they’ll have a hard time getting their money back.
As such, lenders in self-build mortgages will provide you with the needed money over multiple instalments to cover different stages of construction.
These stages are typically set as follows:
- Land purchase
- Excavation and foundations
- Building to eaves height
- Roofing
- Waterproofing/windproofing
- Internal construction and completion
Most lenders will give you an instalment of the loan upon finishing the corresponding stage, but some lenders might give you the instalment at the beginning of each stage.
Frequently Asked Questions
What is an Agricultural Land Mortgage?
If you’re looking to purchase agricultural land as a future investment, as a part of a business venture, or to simply live off of the land by planting food and keeping animals, this is the type of mortgage you should apply for.
You can get an agricultural mortgage for land with a residential property on it or land that you’ll add to an existing house.
Similar to other types of land loans, obtaining an agricultural mortgage depends on your intended use of the land and whether or not you can obtain planning permission for that use.
Also known as farm mortgages, agricultural mortgages are restricted to the following lands/buildings:
- Farm homes
- Working farms
- Lifestyle business farms
- Rural businesses
- Country estates
- Renewable energy locations
- Equine business’s land or property
What is a Bridging Loan for Land?
A short-term loan, a bridging land loan allows you to buy or refinance a plot of land while waiting for a certain financial event to happen. For example:
- Financing the land while waiting for it to sell.
- Buying the land while waiting for a long-term financing plan to be completed.
- Financing the land while waiting for it to repay a current bridging loan.
What is planning gain finance?
This type of loan is very similar to a bridging loan mortgage for land. It’s also short-term, but it offers finance specifically while the land is going through the planning permission process.
What is a Commercial Mortgage for land?
A commercial mortgage allows you to purchase or refinance land for any sort of commercial purpose. This includes building warehouses, offices, shops, hotels, pubs, and so on.
You can also use a commercial mortgage for refurbishments and property development (to finance the construction phase of a property). Commercial mortgages aren’t usually regulated because their rates are determined case-by-case.
What is a Woodland Mortgage?
What type of land can you acquire a mortgage on?
You can obtain a land mortgage on multiple types of land, but they’ll vary in the availability of lenders and the interest rates.
Here’s a quick summary:
Type of land | Lenders’ availability | Offered interest rates |
Residential | Medium | Average to high |
Agricultural | Low | High |
Commercial (to develop) | Medium | Average to high |
Greenbelt land | Very low | Extremely high |
Refinancing land | Medium | Average to high |
Brownfield land | Low | High |
What are the criteria for a land mortgage?
As an applicant trying to obtain a land mortgage, you’re required to deliver a much greater investment compared to regular residential mortgages.
Because your proposition is usually considered high-risk, your application must be tailored to offer a persuasive investment to the lender. That’s done via a combination of increasing the rewards and reducing the risks.
Interest rates | The interest rates offered for land mortgages are slightly higher compared to those of standard residential mortgages and lower than those of commercial loans. Interest rates for a land mortgage can be as low as 3% or as high as 6% or even more (especially if they’re offered monthly). The average, however, falls between 4% and 4.5%. When determining your land mortgage interest rate, it’ll come down to the following factors:
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Deposits and LTV | Similar to residential mortgages, it’s possible to obtain a land mortgage with a 95% loan-to-value ratio (a deposit of 5%). However, without a house attached that’s easy to sell, most regulated and licensed lenders are much less willing to offer low deposits for such high-risk loans. Nowadays, the majority of land mortgages have an LTV between 70% to 85%. This means you’ll need to come up with around 30% to 15% of the land’s price as a deposit. A deposit as high as 50% can be required in some cases with agricultural mortgages. If you’re a first-time buyer or you don’t own another property, the deposit for your land mortgage will be presented in the form of savings. But if you’re a property owner (even if it’s mortgaged), you should be able to utilise that property’s equity as a deposit. |
Your credit history and affordability | When applying for a land mortgage, as with any type of mortgage, your financial situation is a primary consideration. It’s even more crucial for land loans due to their high-risk nature. As such, it’s expected that the lender will thoroughly look into your income and credit history to verify your likelihood to meet the investment terms. |
Planning permission | Without planning permission or land use change permission, your land mortgage proposition becomes significantly riskier. It’s a key factor that affects your mortgage’s offered interest rates and LTV. If you haven’t already obtained planning permission, expect a mortgage LTV of no more than 65 percent. |
Business plans | Whether you’re building a home for yourself, expanding a farm, or using it for commercial purposes, buying a plot of land is almost always part of an investment. Showing the lender business plans and documents supporting your intended use of the land will boost the acceptance chances of your application, increase mortgage LTV, and reduce interest rates. |
What are the fees for Land Mortgages?
Any type of mortgage incurs fees that you should account for before deciding to apply. Land mortgages are no exception, with fees including the following:
- Application fees: these cover your application’s cost, paid either to the lender or the broker.
- Legal fees: these cover the cost of land conveyance, paid to the solicitor. Sometimes, lenders insist that you also pay their solicitor’s fees.
- Valuation fees: these cover the costs of valuing the land by a qualified surveyor, paid to the lender. The more times the surveyor has to conduct valuation (for example, per instalment), the higher the fees.
What are the advantages of Land Mortgages?
Getting a land mortgage is an effective way to cut down on the amount of money required to obtain land. In other words, it enables you to afford land that’s unaffordable otherwise.
Now that you’ve managed to secure land, you can further increase the profit on your investment by building a property.
Not to mention, if you don’t have cash funds to purchase a farm, you can still get into the industry via agricultural mortgages.
What are the disadvantages of Land Mortgages?
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Our Customers rank us 4.6 out of 5
We feel so fortunate to have found WTBSN
We found WTBSN after landing in a really tricky situation. We were out of term on our current mortgage and our existing broker had exhausted all options to re-mortgage due to the complex nature of our holiday let property (Grade II listed, timber frame construction and above commercial). Working under considerable time pressure due to the financial penalties being imposed by the existing lender, Brian was relentless in his search for a solution that would allow us to refinance a property that was on face value mortgageable. Thankfully, he didn’t give up and nine months later, we completed on the re-finance. We feel so fortunate to have found WTBSN and would like to thank Brian and the team sincerely for going the extra mile. We couldn’t have done it without you!
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I will never use another mortgage broker in all my time In property, these guys are the best at communication, customer service and keeping you informed. They are a level above every other broker I’ve come across and they actually get things done.
Emma, Samantha & Ashley have been fantastic in assisting me with 2 mortgages now and they’re superb at what they do. I wouldn’t hesitate to reccommend them to anybody out there who needs a mortgage sorting.
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I have been dealing with Ben @ When The Bank Says No. He has been great!! Professional, kept us up to date the whole way and made the entire process so simple. I would most definitely use him again and have already passed his details on to a family member. Thank you for all your help.
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Thank you for your amazing support and service during a really difficult time in my life. 5* is just not enough to demonstrate the level of support received. These guys go above and beyond. A personal service, with kindness and compassion. I highly recommend. If you’re struggling with your mortgage, then have a chat to this team. I cannot thank them enough for everything they have done.
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