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Land Mortgages

Getting a land mortgage can sometime be difficult, mainly due to the number of lenders willing to lend for land alone. It is best to seek expert advice from a specialist finance broker that will have direct access to the lenders that will consider applications for a land mortgage.

Buying land can be a great investment if you are looking to secure a plot to develop, build your dream home or develop a business. There will always be a decline in the amount of land available do to the fact no more can be produced! This means it can potentially be a fantastic investment.

Financial lenders may see land financing as a higher risk than a mortgage for a building or business. This doesn’t mean that you will not be able to get one but a strong application will increase your chances of securing your finance. There are also alternatives to securing a land mortgage such as a bridging loan. There are a range of reasons for applying for a land mortgage and the reasoning will also dictate the best route to take to getting the finance you need. To speak to an expert broker that will be able to guide you to the best route fill in our call me back form or give us a call.

Types of Land Available

The type of land you want to purchase will dictate the lenders that will consider your application and also the typical interest rate that you will need to pay if your land mortgage application is accepted by a lender.

Land type

Lenders available?

Interest rates

Residential plot (to live)

Good Level of lenders available

Average to high

Commercial plot (develop)

Good Level of lenders available

Average to high

Brownfield land

Lenders Available

High Interest

Greenbelt land

Very rare

Very high if available

Agricultural or leisure

Lenders Available

High Interest

Refinancing land

Good Level of lenders available

Average to high

Planning Permission

Initial planning permission to develop a plot of land will greatly benefit the application process for a land mortgage. It will also help to get more desirable rates if your application is successful. This is due to the added value planning permission provides and outlines exactly what the land will be used for.

If the land you want to purchase doesn’t have planning permission then it is unlikely that a lender will consider your application as the associated risk of lending is too high. There is a chance that the land may one day be granted planning permission but this may take a long time and the risk to a lender may be too high. If a plot of land has planning permission to be developed with multiple homes or commercial properties it is a much more appealing proposition as the associated risk is lower provided the applicant has a full plan of what they intend to do.

There are different kinds of planning permissions and the kind of planning permission that you the land has can make a big difference to lenders.

Outline Planning Permission

Outline planning permission (OPP) – an agreement in principle from the local council planning department. An OPP agrees that either a dwelling or multiple dwellings can be built on the plot of land. Outline planning permission is usually only valid for 3 years and then it must be renewed. For OPP to be eligible for a land mortgage the following criteria must be met.

  • Overall layout of proposed dwellings
  • Appearance of dwellings
  • Landscaping proposals
  • Site access details
  • Upper and lower dimension limits (H,W,L)

Full Planning Permission (FPP)

Full planning permission is usually valid for 5 years. Applications must meet the same criteria as OPP with the additional detail of scale drawings of the dwelling(s) and also contain and information on planning issues. Having FPP on the plot of land you wish to get a mortgage on will make your application more viable and reduce the risk of lending for lenders. This can make the difference between and approved offer or a declined application.  FPP will increase the value of the land which can also increase the lending available if approved.

A lender will arrange for the land to be assessed by a qualified surveyor even if you have full planning permission. This allows lenders to be aware of the kind of land and the potential. It also allows for an independent assessment of any risks involved with the specified plot of land.

Financial Plans

When applying for a land mortgage lenders will also need to see a detailed financial plan. The financial plan should include projections of costs with break downs of the building type, how it will be constructed, what materials will be used and labour costs. A time scale plan is also ideal for lenders to see. Lenders need these details as they may not lend for certain types of builds such as timber frames or non-traditional properties. If you are looking to finance a non-traditional building it is a good idea to speak with one of our brokers that have an excellent working knowledge of lenders criteria.

The clearer and more detailed your application the more at ease the lender will be and the chances of having your application approved will be higher.

Getting the funds for your Land Mortgage

How your finance is released will vary depending on the project and also the scale. Lenders will usually release funding at key stages throughout the project. A Lender may lend at the initial stage to purchase the plot of land and then lend later when the actual build starts and finance through to completion. Lenders fund at different stages to protect their investment. Lenders will instruct a surveyor at each stage to inspect the project to prevent any losses if the build is not going to plan. If the lender is lending at stages it will increase costs due to the additional admin and inspections needed.

Surveyors will also inform lenders of the value at each stage. This gives the lender a clear financial picture of how much they should and can lend to complete the project. After the build is competed the lender may offer a traditional permanent mortgage or allow you to remortgage and pay off the outstanding loan.

How much deposit will I need for a land mortgage?

Lenders will usually require a 20% minimum deposit of the land value for a land mortgage. There are specialist lenders that can lower this minimum but it will depend on the applicant, plot and the plan for the development.

Land Mortgage Rates

The average land mortgage interest rate is between 4-4.5% and rates usually start at 3%. It can be significantly higher than this if lenders rates are offered monthly. Rates will depend on the plot, intended use and experience of the applicant. Along with the usual affordability and credit score assessment lenders will take everything into consideration. Land mortgages are not normally long term finance and are usually shorter than 5 years.

Land Mortgage Fees

There are additional fees that you will need to consider before applying for a land mortgage

Application Fees: This is a fee that is paid to the lender and/or broker for the cost of the application.

Valuation Fees: A valuation fee will need to be paid to the lender to get the land valued by a qualified surveyor. If funds are being released at different stages this feel will increase due to the surveyors being instructed several times throughout the development

Legal Fees: You will need to pay a conveyancing solicitor for the conveyance of the land. Lenders can insist that you cover the cost of their solicitor too.

Refinancing land

The initial finance of your build/plot can be high. Once your project is complete it is advisable to remortgage the property. Once the property is competed you should have access to the open market for mortgages. The rates can be very competitive but will depend on the borrower’s circumstances and the property itself.

Land Finance Specialists

When looking to secure a land mortgage, a specialist broker can be a great asset to you. An experience broker will be able to help you with your plan and ensure that you have everything that you need in place to enable a lender to accept your application.

Speak to one of our commercial brokers today by calling us on 0161 209 6700 or fill in our arrange a call back form to get specialist advice.



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