Is it possible to get a mortgage to buy land?

The short answer to the question “Can you get a mortgage for land?” is yes.

However, mortgages to buy land can be more complex than getting a mortgage for a property. In this article, we will explore how land mortgages work, the eligibility criteria, fees, and whether it's possible to refinance land.

How land mortgages work and the types:

A land mortgage is a type of loan that is secured against a piece of land. The loan is used to purchase the land and is typically repaid over a period of 25 years or less. There are several types of land mortgages, including self-build mortgages, agricultural mortgages, and commercial mortgages.

Self-build mortgage

A self-build mortgage is a type of land mortgage that is designed for individuals who want to build their own home. This type of mortgage is used to purchase the land and then finance the construction of the property. The loan is typically released in stages as the construction progresses.

Self-build mortgages are regulated by the Financial Conduct Authority, because the property is intended to be the applicant's home. As a result of this, it is not expected that the applicant will have prior knowledge of the mortgage industry and should be eligible for protection by a regulatory body.

You might be wondering if you can get a self-build mortgage if you already own land, and the answer is yes. In fact, it makes it an easier process than if you also had to find and buy a piece of land yourself.

Commercial Trust does not broker regulated self-build mortgages, you would need to speak to a regulated mortgage broker.

Agricultural mortgage

An agricultural land mortgage is designed for farmers and agricultural businesses. This type of mortgage is used to purchase agricultural land, buildings, or equipment. The loan is typically repaid over a period of 20-25 years and can be used to finance a wide range of agricultural activities.

Agricultural land mortgages are not regulated, because they are for business purposes, where the applicant is expected to be familiar with the process of taking out a mortgage.

Commercial mortgage

A commercial land mortgage is designed for property developers and investors. This type of mortgage is used to purchase land that will be used to build property on it for commercial purposes, such as office buildings, retail spaces, or industrial units. The loan is typically repaid over a period of 20-30 years and can be used to finance the development of the property.

If you want to buy a piece of land that has no buildings on it, you must be using the land for business purposes and generating an income from it. This is so the lender can see a method for keeping up with mortgage payments.

Commercial Trust can help you secure this type of mortgage, for more information read our page on commercial mortgages.

What is the eligibility criteria for a land mortgage?

To be eligible for a land mortgage, you must meet certain criteria. The requirements will vary depending on the lender and the type of mortgage you are applying for. Some of the most common eligibility criteria include:

Deposit

Most lenders will require a deposit of 25%-40% for a commercial mortgage and a minimum deposit of 50% for the purchase of land. However, some lenders may require a larger deposit.

Planning permission

If you are purchasing land with the intention of building a property, you will need to obtain planning permission before you can apply for a mortgage. Lenders will typically require proof of planning permission before they will consider your application.

There is a small possibility of being able to secure funding without planning permission being in place yet, where the loan could be paid out ahead of planning being applied for. However, the loan to value you can achieve will be limited.

How does a land mortgage work?

Once you have found a piece of land that you would like to purchase, you can apply for a land mortgage. The lender will assess your application based on their eligibility criteria and the value of the land.

If your application is approved, the lender will release the funds to the solicitor, who will then transfer the ownership of the land. You will then begin repaying the mortgage over the agreed term, typically 25 years or less.

Using a broker can help you find an appropriate product from amongst a wide range of options, ensuring you get the most cost effective deal possible.

If you go direct to a lender, they can only give you information about their own products, which may not represent the best outcome for you.

What fees are associated with land mortgages?

There are several fees associated with land mortgages, including arrangement fees, valuation fees, and legal fees. These fees can vary depending on the lender and the type of mortgage you are applying for.

Arrangement fees are typically charged by the lender to set up the mortgage. Valuation fees are charged to assess the value of the land, and legal fees are charged to cover the cost of the conveyancing process.

If you use the services of a broker, they may also charge fees, which could be a fixed sum, a percentage of the loan or a blend of the two.

Can you refinance land?

Yes, it is possible to refinance land. Refinancing involves taking out a new mortgage to replace your existing one. This can be done to secure a better interest rate, to release equity in the land, or to consolidate other debts.

Think carefully before securing other debts against your property. Your property may be repossessed if you do not keep up repayments on your mortgage. By consolidating your debts into a mortgage you may be required to pay more over the entire term than you would with your existing debt.

To refinance land, you will need to meet the eligibility criteria for the new mortgage, and the lender will need to assess the value of the land. Refinancing can be a complex process, and it's important to seek advice from a specialist broker before making any decisions.

We are here to help you

If you are buying land with a view to building a rental property on it, or a commercial building that you will be using for your business, or renting to other companies, the team at Commercial Trust can help you.

We are a specialist broker of land mortgages and can help you find a suitable deal from products across the marketplace. Contact us today.