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Commercial Mortgages for Land Investments
As an investment, land is a popular option for many reasons - but the mortgaging scenario is significantly different than applying for a residential mortgage.
Here, we have collated the essentials you need to know about commercial mortgages for land investments.
How Does Mortgaging Work When I Want to Buy Land?
Land mortgages are available for a wide range of investments, and given this scope, every product will be different:
- Buying agricultural land
- Commercial development projects
- Industrial building works
- Rural land investments
- Urban land development schemes
- Vacant land, or renovations of existing properties
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Can I Apply for a Bank Mortgage to Purchase Land?
Given the specialised nature of a land mortgage, very few high street banks can support this sort of investment with competitive mortgage financing.
The ideal is to consult an independent broker with experience in the UK land investment sector, such as the Revolution Brokers team.
Why Do Inventors Purchase Land?
Land is a viable asset for lots of reasons:
- Short supply of vacant land available to build on
- Commercial developments in expanding areas
- Opportunity to build a private residential property
How Can I Get a Mortgage for a Parcel of Land?
The first step is to contact the team on 0330 304 3040. We will arrange a convenient time to chat with one of our land mortgage experts and get started with securing the lending you need.
Here are some of the most common land investment scenarios:
Land Purchases at Auction
Lots of land parcels are sold at auction, which changes the way these investments are financed. Most auctions need an immediate 10% deposit, with the complete balance due within 28 days.
In this scenario, you need speedy financing to avoid losing your deposit, incurring charges, and also missing out on the land you wish to buy.
Usually, a bridging loan is the quickest way to make the auction purchase, with a mortgage to follow and refinance this short-term solution.
Land Agent Property Sales
Another investment route is through a land agent, who works similarly to a residential or commercial estate agent.
In this situation, working with a broker to secure an agreement in principle is a robust negotiating tool. It demonstrates that you are ready to move quickly when your offer is agreed.
What Deposit Do I Need to Purchase Land?
The deposit required very much depends on what land you are buying, how much lending you need, and what you intend to do with the investment.
Generally, a commercial mortgage for land will require a deposit of at least 30%.
What are the Average Mortgage Rates on Land Purchases?
It isn't easy to give any average indication, given that each land mortgage will be completely bespoke. The interest rates quoted will depend on several factors:
- The nature, size, cost and plan for the land.
- Which lender you apply to.
- How much you need to borrow against the value of the land (i.e. Loan to Value ratio).
- Whether you have planning permission for the intended development.
- What experience, trading history and profits you can demonstrate.
- Your personal credit rating and history.
How Can I Improve My Mortgage Rates on a Land Investment?
You can work on improving your application before contacting a lender to increase your chances of approval:
- Check on your credit rating. Lenders will assess both your personal credit score and the business creditworthiness.
- Minimise outgoings. Applications must be 'stress tested' to ensure you could still afford the mortgage if interest rates were to rise.
- Increase your deposit. The higher the deposit, or alternative securities, the lower the risk and the better the rates you will be offered.
- Consult an independent broker - we work with investors of all sizes to recommend the most competitive land mortgage lenders to fit your requirements.
Is it Possible to Mortgage Land if I Have Adverse Credit Issues?
You can secure a land mortgage with adverse credit, but most mainstream lenders will be unable to help.
Revolution Brokers works with niche commercial mortgage providers who will consider when your bad credit issues happened, what the context is, and other factors such as the land you want to purchase, and how high the risk factor is.
Can I Get a Land Mortgage If I Don't Have a Deposit?
Do I Need Planning Permission to Get a Land Mortgage?
Planning permission isn't mandatory but will make it much easier to secure a land mortgage.
Commercial mortgages are split into those for land with planning permission in place, and those without. These present a much higher risk as there is no assurance that you will be able to develop the land.
Without planning permission, you will probably achieve an absolute maximum LTV of 65% and may be asked for additional security. Many lenders will ask for confirmation from the local authority that they will consider planning permission.
How Do I Apply for Planning Permission Before Mortgaging Land?
Ideally, you should secure planning permission before your mortgage application, as this will make the process much more straightforward.
You can contact your local authority if you need assistance with the application, and are very likely to need this if you intend to:
- Develop the land
- Construct new buildings
- Renovate or change existing properties on the land
Are There Other Options for Financing Land Instead of a Mortgage?
There are - commercial mortgages are just one of many options - alternatives include:
- Self-build mortgage products
- Using development finance
- Taking out a bridging loan
Bridging Loans for Land Before Planning Permission
Bridging loans are more expensive in terms of interest rates and only run for a short-term period.
However, if you want to buy land and are waiting for planning permission, this is a great option to secure the investment, and then apply for a mortgage once you have the approval in place.
Commercial Mortgages for Land Investments
If you want to develop the land to build a commercial property, then a commercial mortgage is the best solution. For most commercial land investments, you will find a maximum Loan to Value ratio of around 50%.
Development Finance to Purchase Land
For development and construction projects, development finance is another option. This short-term lending can provide around 70-75% of the land purchase and 100% of the construction costs.
Funds are released in tranches at pre-agreed stages, and you only need to pay interest on what you have drawn down so far.
The exit strategy will usually be remortgaging once the development is complete or selling the site on to pay back the development finance.
Can I Get a Mortgage to Buy Land and Self-Build a Property?
Commercial mortgages don't apply to residential property builds - this sort of project is usually financed through a self-build mortgage.
Similarly to development finance, you receive funds in instalments from your mortgage lender, at specific stages of the build.
Benefits to a Self-Build:
Revolution clients choose to build their own property for many reasons:
- To have autonomy over the design and style of their home.
- To reduce the costs of a house purchase such as stamp duty.
- To have an asset that will appreciate quickly in value.
Are There Mortgages to Buy Farming Land?
Agriculture is a key industry where land mortgages are applicable, and you can find specific agricultural mortgages targeted to this industry and sector.
Can I Use a UK Mortgage Calculator to Work Out my Land Mortgage?
Online calculators are handy, but are only very rough and can't help you understand the eligibility criteria, or indeed whether your application would be likely to be approved.
For help with understanding rates, terms, and the amount you might be able to borrow, give us a call on 0330 304 3040.
How Can a Land Mortgage Broker Help?
As experienced brokers with years of experience in financing land investments, the Revolution Brokers team can help with any number of issues and challenges in finding the right financing:
- You might need to resolve queries around zoning, access rights, species protection and drainage systems.
- There are multiple forms of financing, so the best one depends on the land and your plans for it.
- Some land investment mortgages are only available through specialist lenders, who do not offer products on the open market.
Expert Support with UK Land Investments and Mortgages
The Revolution team works with a vast network of specialist lenders. We can identify the right provider for you, as well as recommend the most cost-effective financing option and negotiating rates and terms on your behalf.
For more advice around land investments and mortgages, give us a ring on 0330 304 3040 or drop an email to [email protected].
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As specialist mortgage brokers for a huge variety of applicants, the whole-of-market consultants at Revolution provide access to an exceptional range of lenders, products and mortgage deals. That means you get the advantage of professional negotiation and broker-exclusives through an established lending network to ensure we always find you the most competitive mortgage available.
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.