Land Mortgages

When you are looking to purchase land, there are a few things you need to take into account in order to get the right mortgage for your needs. The type of land, its location and what you plan to do with it will all affect the type of mortgage you can get.

Yes – It is possible to get a mortgage to buy land, but it can be more difficult than arranging finance for a property. The land itself may be considered a higher risk investment by lenders, so you may need to put down a larger deposit and have a greater understanding of the associated risks.

With land holding a designated purpose in the United Kingdom, it isn’t easy to apply for a change in planning permission for land you wish to buy. So, it is vital you understand the designated purpose of land you intend to buy, any permissions granted for the land, and on the mortgage you acquire for the land:

The main types of land mortgage on offer in the UK include:

• A self-build mortgage
• Agricultural mortgage
• A woodland mortgage
• A commercial development mortgage

These are all commercially available mortgage types, and this guide will now provide a quick overview of these mortgages:

As you would expect, this style of mortgage is available for people who wish to build property on the land they own. If no property exists on the land, it isn’t possible to arrange a standard residential mortgage, so a self-build mortgage is ideal.

This mortgage focuses on two elements:

1. The land
2. The proposed property being built on the land

It is common for the lender to offer the money to the applicant in stages. Initially, money is provided to purchase the land. Once this stage is concluded satisfactorily, further funds are provided to cover the property build. This includes materials, the costs of labour and all associated costs. Once the property is completed many people replace the self-build mortgage with a traditional mortgage.

With an agricultural mortgage (i.e. for farmland &/or farm buildings, improve farm infrastructure), there must be an agricultural focus to the investment, either as a business venture, or land ownership as part of an investment plan.

In the current climate, it is understandable that many people are keen to be more agricultural. There is a need to be self-sufficient, and more environmentally friendly. Following on from this, many people have decided they wish to keep animal or livestock, whether for themselves or business reasons. In all these cases, an agricultural mortgage makes sense.

Anyone looking to arrange a mortgage for agricultural land should be able to present their plans for the land. These mortgages are available over terms of up to 25 years and the monthly repayments can be made to suit your business cashflow, for example, monthly, quarterly or annually.

With a woodland mortgage, it is unlikely you’ll receive permission to change the designated purpose of the land. However, if you are looking to buy this land as an investment, or for protection and conservation purposes, this type of mortgage would be suitable.

These types of mortgages are available to enable individuals, groups or charities to purchase land. Typically you can have the woodland mortgage for up to 25 years and the rates are higher than standard residential mortgages.

Anyone looking to buy and develop land with a commercial aspect should consider arranging a commercial development mortgage or also known as development finance. Not all lenders offer this type of finance, so using a specialist commercial development mortgage broker would be a good start. The lender could help you purchase the land and provide some of the funds to help with the build which is payable in stages. Once the commercial property is built, you could either sell to realise a profit or arrange a commercial mortgage over a longer term to replace the commercial development mortgage.

Typically, land mortgages require a greater deposit when compared to standard mortgages. There are many variables to consider with this style of mortgage including the applicant’s finances, the condition of land, and the plans associated with the land.

These factors also impact the rates on offer by the lender. Each application is unique, so it is hard to suggest what sort of rate you can achieve.

As with any mortgage, there are fees associated with a land mortgage, including:

• Application fees
• Valuation fees
• Legal fees
• Broker fees

Budgeting for these additional costs is vital in ensuring your budget is sufficient for the project.

While the majority of lenders will not approve a mortgage for land without planning permission or a designated purpose, some will. However, these lenders are likely to offer a lower Loan To Value mortgage, for example 60%, which would mean the client would have to put down a deposit of 40%.

The land registry is the government body that oversees land ownership in England and Wales. This organisation needs to be satisfied land has been legally bought before approving any mortgage for land.

To achieve this, the land registry needs to see:

• The title deeds of the land
• A copy of the mortgage offer
• A copy of the sale contract

To arrange a mortgage you will need to provide:

• Proof of identity – Such as a Passport or Driving License
• Proof of Residence – Such as bank statement, utility bill or council tax letter
• Proof of deposit – to evidence you have the funds and where they have come from
• Proof of income – This will be payslips &/or accounts to evidence that you can afford the mortgage you wish to take out.

Plus any additional documentation the lender requires to underwrite your application.

Anyone looking to mortgage land should ensure they are able to meet the repayments associated with this type of mortgage. It is worth noting land value can go up and down, so there is no guarantee land will increase in value.

Buying land using a mortgage or refinancing land already owned is a big decision, and one that should be made with care. Anyone considering this type of mortgage should speak to a mortgage broker to discuss their options.

A mortgage broker will be able to search the market for the right deal and help land buyers throughout the application process.

Mortgaging land can be a great way to buy property or land in the UK. However, it is important to understand the different types of land, what is needed to mortgage land and the responsibilities that come with this type of mortgage.

Anyone considering a land mortgage should speak to a mortgage broker to discuss their options and ensure they are getting the best deal possible.

If you are looking into taking out a mortgage to buy or refinance land, but you don’t have the time to search the market yourself, help is at hand.

Call The Moneyhub Limited on 0203 725 5830 and speak to one of our highly specialised and dedicated Advisors or you can complete an enquiry form which will allow you to schedule a call time.