Land Mortgages: How Do They Work?


There are numerous reasons why you may wish to purchase a plot of land, from property development to agricultural reasons. Many people are unaware of the finance available to them for purchasing land.

Mortgages for land can allow you to build the home or business of your dreams. Continue reading this article to learn how your dreams could become a reality.

What is a land mortgage?

A land mortgage is a specifically designed mortgage for land that you can build your own property on. Land can be a great asset and it is highly sought after due to the decline in availability.

There are many reasons why you may want to look into land mortgages, for example, if you’re planning on building your own home or using it as an agricultural-based business. 

How long can you mortgage land for?

Some mortgages for land are usually a lot shorter than conventional household mortgages, and they typically only last for about five years. 

However, many self-build mortgages and agricultural loans last up to 25 to 30 years. 

Will I need planning permission for a mortgage on land?

Having the required planning permission in place before you attempt to finance a plot of land will make your application far stronger than if not. 

It’s not completely mandatory for all lenders, but it will dramatically reduce your chances of success without it. 

If you don’t have relevant planning permission or are hoping to change the use of the land, you may still require written permission from a local authority. Willing lenders may also ask for extra collateral. 

The different types of land mortgages

In the UK, land is designed for a purpose and it is often not easy to get the land you desire and make a change. Your mortgage will depend on the type of land, your planned usage and the permission for any changes.

Self build mortgages 

Most buyers who are considering a land purchase for the first time are doing so because they wish to build their own homes. Without a property already in existence, a standard residential mortgage on just the land is impossible. 

A self-build mortgage is part-land mortgage and part-mortgage based on the property you intend to build. Unlike traditional mortgages, the money is provided by the lender in stages. 

Firstly, this is to buy the land, then additional stages to provide cash for building materials and to pay for the work to be done. 

Agricultural mortgages

It is possible to get a mortgage for agricultural land as part of a business venture, or with intentions to simply own the land as a future investment. 

Many agricultural land buyers enjoy the idea of owning a smallholding, where they can work towards being self-sufficient and earning a profit. Often, it can be bought in conjunction with a residential property, or separately to add on to an already existing property. 

Acquiring an agricultural land mortgage will have a lot to do with your plans for the land and the planning permission to use the area in the way you intend. 

Woodland mortgages 

Across the UK, there are many woodland areas which can be bought by a private individual. Woodlands will very rarely come with permission to make changes, but it can be used as a private sanctuary and represent a future investment. 

Woodland mortgages follow similar restrictions to agricultural mortgages. 

Commercial development mortgages 

Businesses may be looking to purchase land in order to develop it in the future. This could include developments like creating new areas for residential homes or supermarkets. 

Commercial development mortgages form part of a business strategy plan. 

What types of land can I get a mortgage on?

Depending on the type of land you intend on purchasing, the rates, finance and lenders will vary.

There are a number of lenders available for residential plots to live on and commercial plots to develop, with average to high interest rates. 

Brownfield and agricultural land have less willing lenders, but they do still exist, and the interest rates can be high, whereas there are very few lenders for Greenbelt land and the interest rates are very high, if they are even offered. 

There are a number of lenders available for refinancing land, with average to high interest rates. 

How do land mortgages work?

There is no one-size fits all for land mortgages out there, and the way they work will depend on which type of land you are purchasing.

All land in the UK is considered as having a purpose, therefore the borrowing on any particular piece of land will need to be clarified. You can expect different features from different mortgage types. 

What is the criteria for getting a land mortgage?

Getting a land mortgage often requires a much greater amount of investment during the application than a standard mortgage. Lenders will want to assess how much mortgage you can afford by checking your credit score, monthly income and the type of land you want to purchase. 

Do you need a financial plan to get a land mortgage?

When applying for finance, lenders will usually want to see a financial plan. Your financial plan should contain the projection of costs with details of the build type, construction methods and labour costs. 

It is also recommended that you provide a time frame for your project. Lenders will request these details, as they may not actually lend on specific materials.

The clearer you are with your intentions, the more likely lenders are to have confidence in your application. 

How much deposit will you need for a land mortgage?

The market for land is much slower and holds a greater risk to lenders than regular residential mortgages, meaning that you won’t see the same low deposit amounts for land mortgages. 

The greater your deposit, the lower your loan to value (LTV) will be. The LTV refers to the size of the mortgage compared to the value of the land. The lower this is, the more likely you are to be accepted for a land mortgage. 

If you only have a small deposit, your LTV will be higher, which means that lenders will view you as a greater risk. You will usually need a deposit of at least 20%, but the best rates will be offered to those who have a deposit of 40% to 50%. 

Land mortgage fees

The lowest rates usually start at 3%, but are often offered at between 4-4.5%. Interest rates will be higher if they are offered monthly, and rates will depend on the plot of land and what it’s intended to be used for. 

Lenders will need to assess the experience of the applicant, as well as their credit score and affordability. This assessment will then give an idea of the interest rates. 

How to get a mortgage for land

If you’re looking for a land mortgage, speak to our professional and friendly team at Go2Mortgage. We will take the time to assess your individual circumstances, as well as finding a mortgage lender to make your dreams a reality. 

FAQs about Land Mortgages

How do I know which type of land mortgage I need?

If you’re unsure what type of land mortgage you require, speak to our professional team. We will take the time to review the type of land you wish to mortgage, and explain the specific requirements that you will need to meet. 

Do you pay stamp duty on a land mortgage?

This will depend on how you intend on using the land.

If you plan on undertaking a self-build project, in England and Northern Ireland, stamp duty land tax is generally payable on the cost of the land, not the value of the property you plan on building. 

In most cases, residential stamp duty rates apply, meaning stamp duty only becomes payable if the cost of the land is over £250,000. 

Scotland and Wales pay their own forms of tax on property transactions, which are similar to stamp duty. 

Can I refinance land?

Yes, a borrower who wants to lower their payments or pay back debt with a reduced interest rate can refinance their land. 

Once you have decided on the type of refinancing, you’ll need to make a plan to complete the process. You should be asking yourself the following questions:

  • Does my credit score align with the lender’s requirements?
  • Will an additional down payment be required?
  • Do I earn enough to afford the repayments?

Where can you get a mortgage for land?

There are a number of specialist lenders out there who will provide land mortgages, however, they are not as common to find compared to standard mortgage lenders. At Go2Mortgage, we can help you find a mortgage lender for your specific land mortgage needs – just get in touch.

About the author 

Gary Oxborough

Gary is the Founder and Director of Barlow Irvin Financial Services Ltd. He has been in the Finance industry for over 20 years and has specialised in Mortgages since 2003. As well as running the firm, he is still actively involved in advising clients.

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