In This Article
Can you get a mortgage on land?
It is possible to get mortgages against land but like with any mortgage, it will come down to several different things.
For example, what is the land for? Is it for agricultural use, does it have planning permission, does it have a right to be used for other commercial activities (for example, storing of building materials), or could it become a house or a housing estate?
As you’ll see, not all land is the same so the size of the land, the location, value, use, permissions, owners’ experience and more need to be taken into account when a mortgage adviser looks at what your options are regarding mortgages against the land.
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Can you get a commercial mortgage on land?
There are instances where commercial mortgages can be taken against a plot of land. The obvious examples are for building use, but it can even be possible to get commercial mortgages against a land where building on it is not the plan (or maybe not even permitted).
For example, agricultural land may qualify for a commercial mortgage. In this case, the applicant would likely be the farmer who can show a commercial mortgage lender their plans for the land and how it will generate revenue. If the lender felt that this was a viable business plan and the land was safe security for their loan, it may be possible to arrange this.
Another example could be a camping site. If the land had the correct permissions to allow people to camp on the land and pay the owner fees for staying there, if a lender felt the owner had the correct experience to run that business, they may be able to lend.
There are other examples. Some builders use plots of land to keep building materials. Sometimes they can be used as carparks, fields for events and more. If the land has the permissions needed to run the business and the applicant is experienced enough, it is usually possible to get mortgage options.
As this is a very specialist area, it would be worth speaking with an experienced commercial mortgage adviser if you wanted to find out your options. Your mortgage adviser will likely be a member of the National Association of Commercial Finance Brokers (NACFB).
Can you get a development mortgage on land to build your own home?
It is possible to get a mortgage for development use to build your own home as long as you qualify. The loan would need to be regulated if it is for you or your family to live in. As a result, your mortgage adviser should be regulated by Financial Conduct Authority (FCA).
The development mortgage is underwritten on the gross development value (GDV) of the property when it’s finished and then released in stages against the value of the land. A surveyor usually visits the site multiple times throughout the build to make sure all is on track and the value of the plot is going up. When they give confirmation, the lender releases the next stage of the money.
The loan can be on a short-term basis, or some lenders offer long term development mortgages underwritten on affordability.
If you are thinking of doing this, you should talk with a mortgage adviser with experience in development finance who can work out which of the options would be best for you and how the products and process would work for you.
Can you get a development mortgage on land to build a buy to let?
You can get development finance against land to build properties that you plan to keep and rent out to tenants.
The process would work in a similar way to that of a residential building, but the mortgage would not be regulated as it is for investment use.
It is also more unlikely that you would get offered longer term finance for the build. It would usually be offered on a short-term basis, for example, up to two years, to refinance the property in the future.
You may do this by taking a buy to let mortgage once the property is finished and ready to let to tenants.
Can you get development finance on land for commercial buildings such as housing development or offices?
It is possible to get development finance against land when you are planning to build commercial properties such as offices, pubs or even launch housing developments where the houses will be sold individually to buyers.
Development finance of this type would usually be on a short-term basis offered to an applicant with the correct amount of experience to undertake such a project.
For example, for a housing estate, most development lenders would need the applicants to be experienced builders to be confident that they have been experiencing needed to complete such a project on time.
The money is released in stages throughout the construction of the property or properties and the loan is paid off when the build is finished. This may be through a sale of the properties or by refinancing the development on completion of the build.
This type of finance is very specialist so speaking with a finance broker with correct experience would be recommended. They would then get a full understanding of the land, the permissions, your needs and experience, and then make a recommendation accordingly.
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Do you get land mortgage advisers?
You do get mortgage and finance brokers that mainly specialise in bridging finance and mortgages for development / commercial use. Some conventional mortgage advisers that mainly arrange standard mortgages may also arrange mortgages for land and development use, but they may not be dealing with these transactions as regularly as the finance brokers that work on the cases daily.
Given the complex and specialist nature of these products, it would be worth finding an adviser that has plenty of experience dealing with these types of transactions.
How do you exit short term mortgages against land?
This will depend on what the land is and your intentions. For example, suppose the land is to be used to build your residential property for your family to live in and you have no intention to sell in the future. In that case, you may be looking to take a residential remortgage which would be linked to your affordability.
If the property that you have built is to be let to tenants, you would likely exit the mortgage using a buy to let mortgage linked to the rental income of the property.
If you have built an office for your business to operate from, it may be that you need a long-term commercial remortgage to exit the development finance. This would be linked to your earnings for the business.
There is of course a lot more in it so speak with a mortgage professional to find out how it would be for you.
It is possible to mortgage land but there is more to be looked at when your adviser is looking into the options.
The use of the land, value, permissions and your experience will all be taken into consideration.
Land mortgages are usually more expensive as they are higher risk and depending on the project, maybe short term loans with an exit strategy are needed.
The products are complex so you should take professional advice. If you would like I NEED ADVICE to match you with an experienced mortgage professional to tell you about your options for a mortgage against the land, please complete the contact form.