Can you get a mortgage on land?

Table of contents:

• Can you get a mortgage for land?
• Mortgage for land costs
• Conclusion

When it comes to securing a mortgage for land, there are a few things to consider.

Can you get a mortgage for land?

Firstly, it is important to note that obtaining a mortgage for land can be more challenging than getting one for an already-built property. This is because lenders view land as a riskier investment, as there is no physical property to secure the loan against.

That being said, it is still possible to get a mortgage on land in the UK. Here are some key things to keep in mind:

• Planning permission: Before you can even apply for a mortgage on land, you will need to have planning permission in place. This is because lenders will want to ensure that the land is suitable for building on and that any proposed construction will comply with local regulations. Without planning permission, it is unlikely that you will be able to secure a mortgage.

• Loan-to-value ratio: When applying for a mortgage on land, lenders will typically be willing to lend up to a certain percentage of the land's value. This is known as the loan-to-value (LTV) ratio. In general, lenders will be more conservative with the LTV for land than they would be for a property. For example, you may only be able to borrow up to 50% of the land's value, compared to up to 95% for a property.

• Interest rates: Because of the increased risk associated with lending on land, interest rates for land mortgages may be higher than for property mortgages. Be sure to shop around and compare rates from different lenders to ensure you are getting the best deal.

• Repayment terms: Land mortgages may also have different repayment terms than property mortgages. For example, you may only be able to borrow over a shorter term, or the lender may require you to make larger repayments.

• Specialist lenders: In some cases, it may be necessary to seek out a specialist lender who deals specifically with land mortgages. These lenders may be more flexible in their lending criteria and may be more willing to lend on land that does not have planning permission in place.

It's worth noting that some lenders may also require you to have a deposit in place before they will consider your application for a land mortgage. This is to reduce the lender's risk and may be a requirement even if you already own the land outright.

Mortgage for land costs

The cost of a mortgage for land in the UK can vary depending on various factors such as the lender, interest rates, and the amount of the loan. In general, mortgage rates for land tend to be higher than for traditional home mortgages, as they are considered riskier investments for lenders.

According to data from Moneyfacts, as of March 2023, the average interest rate for a two-year fixed-rate mortgage on land in the UK was 3.42%, while the average interest rate for a five-year fixed-rate mortgage on land was 3.48%. However, it's worth noting that these rates can fluctuate based on market conditions and the specific lender.

In addition to interest rates, there are other costs associated with obtaining a mortgage on land. These can include:

• Mortgage arrangement fees: These are fees charged by the lender for setting up the mortgage. They can vary but typically range from £500 to £2,000.

• Valuation fees: These are fees charged by the lender for valuing the land to ensure it's worth the amount being borrowed. They can range from £150 to £1,500 depending on the size and complexity of the land.

• Legal fees: These are fees charged by a solicitor or conveyancer for handling the legal aspects of the mortgage. They can vary but typically range from £500 to £2,000.

It's important to keep in mind that these costs can add up, so it's crucial to budget for them when considering a mortgage on land.

Additionally, it's worth noting that obtaining a mortgage on land can be more difficult than obtaining a mortgage for a traditional home. This is because lenders consider land to be a riskier investment, as it doesn't have a physical structure that can be used as collateral in case of default. As a result, lenders may require a larger deposit, and borrowers may need to meet stricter eligibility criteria.

In conclusion, the cost of a mortgage for land in the UK can vary depending on a range of factors. While interest rates for land mortgages can be higher than for traditional home mortgages, it's important to factor in other costs such as arrangement fees, valuation fees, and legal fees. As with any mortgage, borrowers should carefully consider their options and seek expert advice before making a decision.

Conclusion

In conclusion, getting a mortgage on land in the UK is possible, but it can be more challenging than getting a mortgage for a property. You will need to have planning permission in place and may need to seek out a specialist lender. Interest rates and repayment terms may also be different, so it's important to do your research and compare options before making a decision.

Sources:

• "Can you get a mortgage on land?" MoneySuperMarket, 19 July 2021, https://www.moneysupermarket.com/mortgages/can-you-get-a-mortgage-on-land/
• "Mortgages for land: what you need to know," Which?, 25 February 2022, https://www.which.co.uk/money/mortgages-and-property/self-build-and-renovating/mortgages-for-land-what-you-need-to-know-az8mc9n9c1kz