Because we play by the book we want to tell you that...

Your home may be repossessed if you do not keep up repayments on your mortgage.

There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1.5%, but a typical fee is 0.3% of the amount borrowed.

What is a land mortgage?

When lenders refer to a mortgage as a land mortgage, they’re describing a product used to lend money to borrowers who are buying land, potentially for:

  • Agricultural farming
  • Industrial buildings
  • Commercial development
A land mortgage is usually paid back over 25 years and because land mortgages are a specialist area, there can be fewer lenders. 

What is a residential mortgage?

This is sometimes referred to as a home loan or a regular home mortgage. These types of loans are usually offered in more straightforward circumstances, for borrowers who want to buy a property to live in that has already been built. 

A residential mortgage can have an agreement spanning between 10 to 40 years although 25 years is the standard time period for many lenders.

How much deposit do I need for a land mortgage vs a residential mortgage?

A larger deposit of around between 25 - 40%, along with a good credit history and proof of reliable income, can improve your chances of being approved for both a land mortgage or a residential mortgage and can also give you a wider choice of lenders and rates to compare, which is great as ideally, you want to pay a lower interest rate on your loan.

If you’re buying land to build on, a bigger deposit can also mean that you purchase a larger percentage of the land value upfront and therefore, you borrow less. This can increase your appeal as a borrower as a smaller loan means smaller repayments which are seen as more manageable.

Can I get a mortgage with a small deposit?

Whether you decide to opt for a residential or land mortgage, we understand that not everyone is in a position to raise a higher deposit and thankfully there are lenders who can take other factors into consideration.

It may be the case that a lender charges you a higher rate of interest but working with a broker can help to identify the mortgage agreement most fitted to your needs.

Our brokers have access to hundreds of lenders and already know which ones provide land mortgages with lower deposit requirements. You can ask an advisor to look at your eligibility for a land mortgage via an
enquiry form if you’re curious.

How do lenders set their interest rates for land mortgages vs residential?

The interest rate you are charged on your land mortgage or residential mortgage can vary because there are so many factors that can affect your assessed level of risk as a borrower.

Most lenders adopt the approach of “the higher the risk, the higher the interest rate” although this isn’t always the case and there may be lenders happy to offer you a land mortgage with a lower interest if you meet other eligibility criteria.

Banks and lenders will look at your:

  • Income
  • Age
  • Credit History
  • Debt
  • Experience of building/project management
  • Location of the proposed build
They may also refer to the Base Rate to set their interest rates. This is set by the Bank of England and can fluctuate over time if outside factors such as economy performance.

Can I get an agricultural mortgage?

If you have ambitions of buying land for farming or would like to  improve or increase existing farmland, then you may have looked into agricultural mortgages. 

Depending on your circumstances, it may be possible to secure a loan-to-value rate of up to 80% of the land value, although this is subject to your affordability and the lender’s criteria checks. 

Before you apply for finance for land, always ask a broker to go through the application with you. They may be able to find your a cheaper of more suitable land mortgage deal elsewhere, saving you money on fees or interest. 
You’ll need planning permission for a land mortgage...

Mortgage lenders will likely request to see evidence of planning permission before granting a loan for a land purchase. From the lender’s perspective, they need to ensure that you can repay your loan and a lack of planning permission could cause delays or even halt the project completely.

Having FPP (full planning permission) in place when applying for a land mortgage can increase the value of a plot of land which is something that will appeal to a lender and can help you access better rates.

You’ll need to apply to your local council for FPP and during the process you may be asked to submit:

  • Detailed scaled drawings of your project
  • The overall layout of the proposed dwelling(s)
  • Your proposal for the landscape (if relevant)
  • Details of your budget
  • Projecting your costs

The lender will also require you to supply a projection of your costs if you’re applying for a land mortgage. They’ll use this to determine whether you have budgeted and planned for resources, material, labour and unexpected delays that can affect your land build.

Your projection of costs should include as much detail as possible as this can help lenders get a better understanding of your intentions for the build.

How do I know which mortgage is best for my situation?

To get a better understanding of which type of mortgage product would be best for you, chat to an advisor who can explain the pros and cons of each product in relation to your circumstances. 

Using their help, it may be possible to find a land mortgage with terms that fit your requirements and if a land mortgage proves difficult to obtain or isn’t quite the right fit, your broker can discuss and recommend alternative options, which may include a regular home mortgage, bridging finance or a self-build mortgage.

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