Land mortgages do exist, but there’s only a small pool of lenders in this market.
A mortgage for land can help you to self-build your dream family home, purchase a smallholding for a new future or begin developing a commercial property.
These loans don’t work in quite the same way as a standard mortgage. In this guide we will walk you through the different mortgage options, what types of land can be financed and where to get the best deals.
What is a land mortgage?
A land mortgage is very simply a secured mortgage that allows you to purchase a plot of land, with or without existing buildings.
The loan is secured against the land and formally registered with Land Registry.
The type of land will dictate the type of loan you need. Some of the more common purposes are; purchase rural land, agricultural land, self-build, building plots or developments.
This is a type of commercial finance and so the rates, fees, loan to value, will all depend on the specific plot of land and your plans post purchase.
The different types of land and zones
Land zoning specifies the allowable uses for a parcel of land as determined by the local Planning authority for each area.
The zoning classification of the land will impose limitations on the kinds of structures you can erect and the business operations you can conduct. As such, understanding the zoning regulations is an essential step to take prior to initiating your search for land, or indeed applying for finance.
Here’s a list of types of land that can typically be financed through specialised land mortgages or loans:
Agricultural Land
For farming, livestock, or other agricultural activities.
Common in rural areas and governed by the Department for Environment, Food & Rural Affairs (DEFRA) in England.
Development Land
For residential or commercial property development.
Requires Planning Permission from the local planning authority.
Brownfield Land
Previously used for industrial or commercial purposes.
May require environmental assessments and is subject to UK-specific regulations.
Greenfield Land
Untouched land, often on the outskirts of towns or cities.
Subject to planning permission and local zoning laws.
Woodland or Forest Land
For timber production, conservation, or recreational use.
Managed under the Forestry Commission in England and equivalent bodies in Scotland, Wales, and Northern Ireland.
Recreational Land
For leisure activities like fishing, hunting, or camping.
May have specific zoning restrictions.
Zoned Land
Land designated for specific use like residential, commercial, or mixed-use.
Zoning is determined by local planning authorities.
Self-Build Plots
For individuals planning to build their own homes.
Requires planning permission and adherence to UK building regulations.
Commercial Land
For business operations, retail spaces, or industrial use.
Subject to business rates and planning permission.
Conservation Land
Land set aside for environmental or historical preservation.
May be eligible for grants or tax incentives.
Types of land mortgage
There are many reasons why you may want to buy a plot of land. Some are commercial in nature, to make money, but some are purely for enjoyment or perhaps to create a family legacy.
UK land is designated for different uses and the mortgage you need will depend on what kind of land you are buying and your intended use once owned.
Here’s a quick overview of the different types of land mortgages:
Commercial mortgage
Finance designed for property developers, investors and businesses.
A commercial mortgage is used to purchase land for commercial activity. Building offices, retail spaces, housing development or industrial units.
Agricultural mortgage
This finance can be used to purchase a farm, smallholding or purely to buy farming land.
You could use a smallholding mortgage to purchase a dwelling with some surrounding land and start a new self-sufficient venture.
Some land comes with an agricultural land or AOC, this affects how the land is used and will limit the number of possible lenders.
Self-build mortgage
A lot of the smaller plots of land are used to self-build. So you purchase the land and then self-build your own home.
Without a property already there, gaining a residential mortgage is not possible. You must use a specialist self-build mortgage provider who will release the money you need in stages, as the build progresses.
Woodland mortgage
Owning a section of woodland is a dream for so many people, the wood could be purchased as an investment, to start a business or just for your family and friends to enjoy.
The type of woodland mortgage or finance that is available will depend on what you will do with the land. Such as owning it for your own enjoyment and recreation or, running a forestry based business there.
Holiday park
Camping, glamping and podding are all the rage.
Holiday park finance will allow you to purchase land to run a holiday park business. Where you have buildings in-situ suitable for holiday letting, glamping pods and perhaps space for camping and caravans.
Lending criteria
Mortgages for land are only available from specialist lenders and commercial banks.
They will be assessing the viability of the land you wish to finance, and your own financial standing and affordability.
Undeveloped land, or bare land, can be harder to sell and get planning permission on, so lenders will need to see proof of how you will be developing the land, and mitigating any risks.
Interest rates will be higher than for a standard residential or buy to let mortgage, reflecting the specialist nature and extra risks.
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How much deposit is needed?
We are in the world of commercial finance, so expect to be asked for 25-50% deposit for land purchase.
This difference reflects the diverse ranges of land, and their possible uses. The more speculative projects will need a higher cash input.
If you already own property, or land, it may be possible to use that to raise the deposit.
Some lenders offer to cross-collateralise loans over several properties, a useful option if you can find it.
Planning permission
Not all lenders need you to have planning permission in place, prior to applying for a land mortgage. But you will find there are a greater number of lenders, and more attractive terms, if you do.
Planning consent is an important and significant element that all lenders will thoroughly investigate. It can make or break a deal.
Mortgages are available without planning, but the preference is to have outline planning consent as a minimum. There are two basic types of planning permission:
Outline Planning Permission (OPP)
Outline Planning Permission allows you to get initial approval for a development without submitting all the detailed plans.
It’s valid for three years and lets you know if your project is generally acceptable. However, you’ll still need to get final approval for specific details, known as “reserved matters,” like layout and appearance. It’s a cost-effective way to test the waters before fully committing to a project but doesn’t guarantee that you’ll get the final go-ahead.
Full Planning Permission (FPP)
Full Planning Permission is the complete approval you need to start a building project.
It requires you to submit detailed plans and get reviewed by the local planning authority. If granted, you have three years to start building. It provides certainty but can be costly and time-consuming to obtain.
Note that obtaining planning permission doesn’t have to be done by you.
Undeveloped land is often sold with permission already in place. You just need to make sure that it is appropriate for your needs.
Land with planning consent will be worth more than land without. So gaining planning permission on land you already own will give you an uplift in value. Some developers will use this as part of their business strategy, and will sell on the land without needing to develop it. Planning gain finance can help with these types of project, but they are fairly risky.
How does a land mortgage work?
It depends…
The type of loan you will get will depend on the category of land, any planning permission, and your plans thereafter.
It is possible to acquire finance to just purchase a plot of land. You may then spend time getting outline or full planning permission, before selling it on for a higher value. In this case the funds would be released all in one go for the initial purchase.
For plots where there is an intention to build, or improve, most mortgages will pay out in stages, beyond the initial land purchase. This reduces the risk for lenders, as they will only release money if their surveyor has approved the works done so far.
This operates in much the same way as development finance.
Which lenders offer land mortgages?
There are a few high street banks that operate in this market.
But the wider choice comes from niche banks and commercial lenders.
You’ll find that each lender has their own preferences. For example, Halifax is happy to provide self-build mortgages but not mortgages for agricultural land.
What can a bridging loan be used for?
A bridging loan is similar to a mortgage or secured loan. It is a loan that is secured against a property, or in the case of a cross-collateral bridge, across multiple properties. However, these loans are only granted for short durations, typically 3-24 months, and then they must be repaid in full.
How a commercial mortgage broker can help
A commercial mortgage broker will be able to give you access to these specialist lenders and provide detailed advice on how best to submit your application.
Approaching the right lender, in the right way, will save you time and money.
Brokers can also offer other types of finance that may help to bring the whole deal together:
- Second charge loans or bridging finance for the initial deposit or funding
- A land mortgage for the purchase
- Development finance to fund the build
- A commercial mortgage for long term finance if you intend to keep the asset
- Refinancing any of the above
Also in this section
Seafarer Mortgages
Semi-Commercial Mortgages
Holiday park finance
Commercial mortgages
Private Bank Mortgages
Smallholding mortgages
Woodland Mortgages
CIS Mortgages
Company Directors
SPV Mortgages
This post first appeared on Respect Mortgages - Be In The Know, please read the originial post: here
