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Mortgaging Land Purchases

Borrowing against a mortgage to invest in land is somewhat different from buying a property. Read on for advice about land mortgages and the information a lender will need to see.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2023-05-09
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Land Buying Mortgage Options

Securing a mortgage against the land, rather than against property, is a different proposition. Land finance has very different criteria and is a specialist mortgage product not available through most mainstream mortgage lenders.

Mortgaging UK land purchases

Land mortgages are used to purchase land properties and can be used to invest in any sort of land. This includes:

  • Agricultural land
  • Commercial development space
  • Land in industrial areas

These mortgages can be used to purchase empty land as a standalone asset or can be used to buy an estate that has an existing property in situ.

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Finding a lender for a land mortgage

Given the speciality nature of land mortgages, they don't tend to be available through high-street banks or mainstream lenders. There are fewer mortgage providers who offer land mortgages.

Business loan broker work with a nationwide network of mortgage specialists and niche lenders who offer bespoke land mortgage solutions.

If you are looking for competitive deals to invest in a piece of land, give us a ring on 0330 304 3040, and we will help get your funding in place.

Investing in land

There are lots of reasons that land makes a strong asset to add to a portfolio. With restrictions on the sale of parcels of land, how they can be developed and what they may be used for, land itself is limited and can be a very lucrative asset.

Mortgages for land are available to:

  • Investors
  • Property developers
  • Self-builders
  • Commercial investors

How to secure a land mortgage

Revolution Brokers specialise in niche mortgage lending and are on hand to negotiate land mortgage deals to maximise the value of your investment.

Many land sales are completed through auction, which means needing to pay an upfront deposit to secure the lot, and is required to remit the balance payment within 28 days of the auction date.

Auction finance is a fast solution that allows you to raise funds quickly to secure your land purchase at auction. Another option is bridging finance, a short-term form of lending to raise funds when they are required very quickly.

If you are unsure which form of lending will be most appropriate for your land purchase plans, or which will be most cost-effective, give us a call, and we will be happy to talk you through the options!

Purchasing land through an agent

There are land agents who specialise in the sale of plots of land in much the same way as estate agents specialise in selling property.

This can be an excellent way to find the land investment you are searching for and the agent will negotiate between yourself and the seller to agree on the sale price. You will usually need to have at least an agreement in principle in place to finalise your deal, so should bear your mortgaging in mind before price negotiations begin.

Deposits on land purchases

Deposits on land mortgages don't work the same way as residential mortgages and are more bespoke given the variability of land purchases.

These depend on:

  • The location of the land
  • What you intend to do with the land
  • How large the plot is

Most lenders will require a higher proportion deposit, typically of around 30% or higher than the cost of the land.

However, this varies between lenders, and Revolution Brokers can negotiate bespoke terms for you to ensure that your land investment plans can proceed.

Interest rates on land mortgages

As with residential and commercial mortgages, the terms and rates available will vary significantly between lenders.

These depend on various factors, such as:

  • The details of the land purchase, what development plans are in place, and how long the funding is required for.
  • What type of mortgage you need.
  • How much you are borrowing in relation to the value of the land, or the anticipated resale value (LTV).
  • Whether you have planning permission in place.
  • Your experience and credit history.
  • The circumstances - whether you are purchasing through a business or as an individual, and your trading history.
  • How much you are looking to borrow in total.

How to achieve competitive land mortgage rates

There are lots of things you can do to increase the likelihood of being offered competitive interest rates on your land mortgage application:

  1. Tidy up your credit file and check your status is at least fair before applying.
  2. Carefully consider your budget for the project, and assess whether your development will still be possible if interest rates rise. The more you can reduce your budget, the less you will need to borrow.
  3. Offer security - the lower the risk to the lender, the more competitive the rates they can offer will be. If you have an existing property or asset that you can provide as collateral, this will help to achieve lower interest rates.
  4. Pay a higher deposit - the more deposit you can afford, the less you need to borrow and the lower the LTV ratio. This will enable your mortgage lender to be more competitive on their terms.

Securing a land mortgage with an adverse credit history

As with all types of mortgage, it is more challenging to secure a mortgage and find a lender willing to extend credit to you if you have an adverse credit history.

This type of application will depend on how long ago your credit history occurred, your current financial status and whether these issues were repeated or a one-off.

If you need to secure a land mortgage and are worried about your credit history impacting your ability to obtain lending, give Revolution Brokers a call, and we will suggest the best course of action to secure your borrowing.

Land mortgages without a deposit

It is possible but difficult to secure a land mortgage if you don't have a deposit available.

This all depends on the land you wish to buy, what sort of cost and revenues are involved, and your credit history.

Mortgaging land without planning permission

Planning permission is a valuable asset to have since it assures your lender that your development plans will be able to go ahead. It can be much harder to secure mortgage lending if you do not have planning permission, or it has been rejected before.

It is still possible to obtain a land mortgage if you don't have planning permission, but typically you will need to provide:

  • A higher deposit of at least 35% of the value of the purchase.
  • Additional security or collateral.
  • Written confirmation that your local authority will grant planning permission.

You will also need to have a business plan and be able to demonstrate your experience and ability to complete the development successfully, to give your mortgage lender the confidence to lend against a land purchase without planning permission.

Can I apply for planning permission on a land purchase?

Usually, if you purchase a parcel of land without planning permission, you can only apply for this once you own the property and have the right to ask to develop it.

Planning permission will be needed for almost all land developments, including:

  • Changing the permitted use of the plot.
  • Building properties or commercial premises.
  • Amending or redeveloping existing properties in situ.

Alternatives to land mortgages

If a land mortgage isn't right for you, other financial products can help you complete this sort of purchase. Should you be in any doubt as to the best source of finance, or which will offer the most competitive rates for your project, give us a call on 0330 304 3040, and we will be delighted to advise!

Alternative sources of finance include:

  • Short-term bridging loans.
  • Self-build mortgages if you are buying land to construct your home.
  • Development finance - to develop land to create properties either commercial or residential.
  • Commercial mortgages - borrowing either as an investor or a business to secure a property as part of your business plans.

Bridging loans while planning permission is pending

A bridging loan is a good option where you need short-term financing fast. It can be refinanced through an appropriate mortgage at a later stage, and if you are yet to secure planning permission can be an excellent interim measure.

The interest costs are usually much higher on this sort of short-term finance than on a longer-term mortgage, so you need to ensure you have a robust exit strategy in place to repay and refinance your bridging loan.

Commercial mortgages for land purchases

If you are purchasing land to develop a commercial property, then a commercial mortgage might be the most suitable choice.

Using a commercial mortgage to invest in land will usually cost more in interest rates than a commercial mortgage to purchase a premise. Most lenders will cap this sort of lending at a 50% LTV ratio, so you will need to be able to pay 50% of the purchase value as a deposit.

Development finance for land purchases

Development finance is another alternative option and is usually available to experienced developers with demonstrable experience in this field of work. They tend to be short-term forms of lending, which help to purchase the land and cover the cost of the development or building work.

Typically, development finance is available at 100% of the cost of the building work, and up to 70-75% of the value of the land.

Development finance is released in tranches at different stages of the development project, and applicants will need to be able to demonstrate their exit strategy to be able to refinance the debt when the development is complete.

This is usually by remortgaging at the end of the development process through a commercial mortgage, secured against the finished development at its new market value.

Self-build mortgages

A self-build mortgage is an option to cover the cost of the land and to build your house upon it. This is an option for people looking to build their own home, and also for developers looking for opportunities to buy land and build properties on it.

As with development finance, this type of mortgage releases funds in stages, against the progress of the self-build. Usually, the first payment will be released once the land has been bought, and then subsequently at each significant stage of the building project.

This type of mortgage is also a specialist product, and unlikely to be available through many mainstream lenders. If you are looking for self-build mortgage options, give us a call, and we will help you find the self-build mortgage you need.

There are many reasons people choose to undertake a self-build project:

  • Flexibility and freedom of the design and build.
  • Reduced stamp duty costs, with only the land being subject to stamp duty and more likely to fall under the £125k threshold.
  • Potential for capital growth, with an increase in value against the original land cost and the build budget.

Land mortgages for farms

One of the most popular reasons for land mortgages is to buy rural or agricultural land. In this case, a specific agriculture mortgage is usually the most suitable option.

Using a broker to secure land mortgage lending

Many investors looking to purchase land use a specialist broker such as Revolution Brokers to negotiate the terms at which they borrow.

There are lots of complex factors to consider around land mortgages making it a more specialist area than residential mortgages - these include:

  • Issues with access and public rights of way
  • Zoning regulations
  • Environmental issues

Using a niche broker means that we can identify the specialist lenders who understand your land mortgage requirements, and can navigate the jurisdictions and regulations around land mortgages efficiently.

Revolution Brokers work with an established network of lenders across the UK who offer specialist land mortgages and can offer highly competitive rates tailored to your investments.

Give us a call or drop us an email today to discuss your land mortgage plans, and we will help you find the best rates to suit your plans.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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