Can You Get a Mortgage on Land?

Estimated reading time 5 minutes

In short, yes there are land mortgages available, however it is important to note that buying land is considered a high-risk investment by many lenders, so it is often necessary to seek out specialist lenders. So, whilst you can get a mortgage on land, it is often recommended to work with professionals who can access a wide range of lending options, provide expertise in finance plans, and offer support throughout the process.

What are the Land Classifications?

The classification of land in the UK can have an impact on the use and development of the land, as well as its value and likely-hood of obtaining a mortgage. Here are some of the common categories of land in the UK:

Residential Land:  Residential land is classified as land that is intended for use as a place of dwelling. This can include land for single-family homes, apartments, and other types of residential properties. If the land is intended for use as a place of dwelling, such as a single-family home or apartment, then planning permission will likely be required before a mortgage can be approved. This is to ensure that the land is suitable for residential use and that all relevant building regulations are met.

Commercial Land: Commercial land is classified as land that is intended for use for business or commercial purposes, such as offices, retail spaces, and industrial properties.

Agricultural Land:  Agricultural land is classified as land that is used for farming, forestry, or other agricultural purposes. This can include farmland, pasture, and woodland.

For land that is intended for agricultural use, such as farmland or forestry, planning permission may not be required. However, it is important to check with the local council to ensure that the land is suitable for agricultural use and that no restrictions or planning requirements apply.

Development Land:  Development land is classified as land that is intended for future development, such as building new homes, businesses, or other structures. This can include land that is currently undeveloped or land that is in the process of being developed.

If the land is intended for future development, such as building new homes or businesses, then planning permission will likely be required before a mortgage can be approved

Green Belt Land: Green belt land is classified as land that is designated for preservation and protection, as it provides a green lung around urban areas. This type of land is protected from development and is intended to provide a separation between urban and rural areas.  As a result, obtaining a mortgage on green belt land can be more challenging due to the restrictions and protections in place. It is important to secure planning permission and consider alternative options in order to obtain a mortgage on this type of land.

Gaffsy says ….do your research before buying land in the UK, buying land without a long-term strategy can end in disaster so research into areas like planning, development and infrastructure.

How Does a Land Mortgage Work?

A land mortgage in the UK works similarly to other types of mortgages, many of the same checks that exist when looking to take out a standard home mortgage are done but with some key differences. Here’s what you need to know:

Release of Funds: Typically, the lender will release the funds in stages as the development progresses. This allows the lender to ensure that the funds are being used for the intended purpose and that the development is proceeding as planned.

Financial Plan: A finance plan is typically required for a land mortgage in the UK. This plan should outline the proposed development, the costs involved, and the expected return on investment. Commercial development require a formalised and documented business plan and strategy. For agricultural land your application would require a business plan for farming the land and income streams.The finance plan will be assessed by the lender to determine the feasibility of the development and the suitability of the loan.

Repayment TermsThe repayment terms for a land mortgage in the UK can vary depending on the lender and the specifics of the loan. Common repayment terms include interest-only loans, where only the interest on the loan is paid during the development phase, with the balance repaid when the development is complete, and capital repayment loans, where both interest and capital are repaid over the term of the loan.

Collateral:The land being developed serves as collateral for the loan. This means that if the borrower defaults on the loan, the lender may take possession of the land to repay the loan.

Gaffsy says .. Take time preparing the financial plan, strong business plans are more likely to secure the mortgage at a competitive rate. Also forget that the deposit required for a land mortgage can be substantial, they normally start at 20% of the lands value. So it is essential to have a clear understanding of the costs involved and to budget accordingly.

Do you have Land that you want to sell?

If you answered YES and you are looking to sell your land quickly for cash? Look no further!

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