How to Get a Land Mortgage
If you're considering buying a plot of land and need financing, there are specific mortgage types for this very purpose. Whether you're planning to build your own home or embarking on a commercial venture, lenders offer products to suit every type of land purchase.
These mortgages differ from traditional residential ones, coming with distinct criteria which applicants must meet. In this guide, we’ll go over what's involved and, ultimately, how to secure a land mortgage.
We’ll cover:
What is a land mortgage?
A land mortgage is a specialised loan designed specifically for purchasing land. Unlike standard residential mortgages, land mortgages cater to the particular aspects of land ownership and come with certain lender requirements.
How do land mortgages work?
Land mortgages come in three main forms, each being tailored to specific land uses and their associated requirements. Likewise, each type has unique terms and conditions, so it's integral to choose the right loan for your land's intended purpose.
Different types of land mortgages
Self-build mortgage
A self-build mortgage is tailored to individuals who want to finance the construction of their own home. Unlike traditional mortgages, a self-build mortgage releases funds in stages as the construction progresses. This ensures you have the necessary funds to cover the costs of building a new home from start to finish.
Agricultural mortgage
Agricultural mortgages are intended for purchasing land to be used as smallholdings or leased to local farmers. Lenders evaluate the property's value by considering factors like location, infrastructure, and overall income potential. These mortgages can have varying payment structures.
Commercial mortgage
A commercial mortgage for land provides financing to businesses or individuals looking to acquire land for commercial purposes. As such, this type of mortgage is tailored for purchasing land intended for uses such as retail spaces, office buildings, or industrial facilities.
Eligibility criteria for a land mortgage
When evaluating your eligibility for a land mortgage, lenders commonly perform an income stress test to ensure your income can cover loan payments. A healthy credit score is advantageous here, as it affects the loan-to-value (LTV) ratio and interest rates available to you. The type of land you're purchasing and its intended use also significantly impact the deal's competitiveness.
If you want to get an idea of your current eligibility before you apply, you can use our free credit check tool (£14.99 per month after the free 30-day trial). Using it will help you to detect any potential mistakes or fraudulent activity on your profile, so that you can deal with such problems straightaway. The trial and subscription can be cancelled at any time.
Land mortgage deposit requirements
The required deposit for a land mortgage varies based on factors such as the type of property, your creditworthiness, and the lender's policies. Usually, deposit percentages range from 30% to 50% or more, especially for undeveloped land, as often seen with agricultural mortgages.
Land mortgage interest rates
Typical land mortgage interest rates often range between 2% to 3% above the Bank of England base rate. Rates can be considerably higher for agricultural and commercial plots, particularly for land in greenbelt areas. Having said this, your specific interest rate will depend on the factors we’ve just discussed, i.e., your perceived attractiveness and risk level as a borrower.
Do you need planning permission for a land mortgage?
While planning permission is not mandatory for all land mortgage lenders, not having it can substantially reduce your chances of approval or securing favourable rates and LTV ratios. Generally, your mortgage application will be much stronger if you have all the required permissions in place before attempting to finance a plot of land.
Can you get a land mortgage with bad credit?
Securing a land mortgage with bad credit can be more challenging, but options do exist. Specialist lenders accommodate borrowers with adverse credit and will offer land mortgages. It's important to reiterate, though, that having poor credit may result in higher interest rates and stricter terms.
However, if you're looking to purchase land, this can still be a viable option. Providing comprehensive documentation outlining your planned future use of the land is vital here. A strong business plan enhances your chances of securing better rates and favourable terms.
Other ways to fund a land purchase
If you want to look at alternative methods of financing your land purchase, you can consider options such as remortgaging to release equity from an existing property, or instead, a second charge mortgage.
Can I get a mortgage to buy land?
Yes, it is possible to obtain a mortgage to buy land, but the options are more limited compared to conventional mortgages for buying property. It’s typically only specialist lenders that will offer mortgages for land, as mainstream lenders often perceive land purchases as higher risk.
For this reason, securing a mortgage for land in the UK can be challenging, but it is achievable with a strong application and a sizable deposit, as mentioned. Given the complexity of the process, we recommend seeking assistance from an experienced land mortgage broker.
How a broker can help you get a land mortgage
As we’ve established, obtaining a land mortgage can be more complex than securing a standard residential mortgage. Although, engaging with a specialist broker who understands the intricacies of these loans can greatly streamline the process.
A knowledgeable broker has access to diverse lenders, alongside expertise in the specific requirements and obstacles of securing such financing. With their help, you can navigate the application process with confidence and secure the most suitable product tailored to your needs.
At The Mortgage Genie, we're dedicated to assisting people get mortgages of all kinds, including those for land. Contact us at 01915809890 and we'll connect you with an experienced professional who understands your unique situation. And why not see how much you could borrow up to today by using our mortgage calculator?
This information is a guide only and should not be relied on as a recommendation or advice that any particular mortgage is suitable for you. All mortgages are subject to the applicant(s) meeting the eligibility criteria of the specific lender. You should make an appointment to receive mortgage advice which will based on your needs and circumstances.