Land Mortgage: Can you get a mortgage for land?

Home Land Mortgage: Can you get a mortgage for land?
Sunny Avenue
Mortgages Sunny Avenue
13 Jun 2023

If you're in the market for a land mortgage, it can be overwhelming, especially with a shortage of lenders. However, with the right guidance, buying land can be a wise investment. Constructing your own home on a plot of land can be a cost-effective alternative to purchasing an existing property.

In this insight, you'll learn about land mortgages for building a house & planning permission. Perfect for first-time buyers or experienced homeowners.

Key takeaways

  • If you are looking to get a mortgage for land, or to develop on land, you need a land mortgage. The one you need depends on the type of land you are buying.
  • Having Local authority permission or planning permission will help your chances of approval.
  • Depending on the Mortgage type, you may be required to raise a deposit from 20-50%.
  • If you build a property, ongoing valuations are required to assess the development value and Mortgage funds are released as each stage of the development.

What is a Land Mortgage?

The purchase of land can be funded through a land mortgage, a long-term secured loan that uses the land as collateral. Like with a standard mortgage, if you can't make payments, your land may be repossessed.

The criteria for a land mortgage can vary depending on how the land will be used.

In the UK certain plots of land are designated for specific purposes. Seeking legal advice may be necessary to change the status of the land. As an example, if you purchase agricultural land it cannot be used to build residential properties. With the right advice, you can change the land status, but this can take time and is costly.

If you are considering buying land, start by researching the type of land mortgage you need. Then continue to read our insight: Is it worth buying land?

Looking For Land Mortgage Advice?

If you're thinking about your mortgage options ahead of buying land...
We can help you find a mortgage specialist to offer you the very best advice. Complete our Sunny Fact Find form to provide us a bit more detail about your circumstances and we'll find the best-suited adviser for your needs.
Your appointed adviser will contact you to discuss how they can help, you decide how to proceed.

Types of Land Mortgage

Various types of mortgages are available under the umbrella term "land mortgage." It's important to determine which type of land mortgage you require based on the type of land you are buying or already own. Different types of land mortgages are available, including:

Development Loan

If you're looking to construct a residential property, a development loan, also referred to as a self-build mortgage, can be used to purchase land for this purpose.

A development loan is a mortgage option that can cover both the land and building costs of the property. The funds for the land are released upfront, while the money for the property build is released in stages. Regular valuations are necessary at each development stage, and the funds will be released if each stage aligns with the expected valuation figures.

To proceed with a development loan, lenders generally require a deposit of 20-25%. Once the build is complete, the loan can be refinanced with a standard mortgage to repay it.

When would you use a Development Loan Land Mortgage?

Let's say you have identified a plot of land that you want to purchase for £200,000, and you estimate that it will cost an additional £300,000 to construct the residential property you want. You could apply for a development loan for the entire amount of £500,000.

The lender would release the £200,000 for the land upfront, and then release the remaining £300,000 in stages as the property is constructed. These stages could be based on reaching specific milestones, such as completing the foundation or the framing of the house.

Throughout the development process, valuations would be required at each stage to ensure that the project is on track and within budget. If the valuations meet the expected figures, the lender would release the funds required for the next stage.

Once the construction of the property is complete, you could refinance the development loan with a standard mortgage to repay it.

Agricultural Mortgages

If the land you're buying or already own is intended for farming, an agricultural mortgage could be the right option for you.

Agricultural mortgages can be used to purchase a farm or to extend and develop an existing one. To apply for this type of mortgage, you will usually need to provide a business plan to support your application. Moreover, agricultural mortgages may require a deposit ranging from 20% to 50% of the property's value.

When would you use an Agricultural Land Mortgage?

Let's say you're looking to purchase a farm in the UK with a value of £500,000. To secure an agricultural mortgage, you may be required to provide a deposit of 20%, which would be £100,000. The remaining £400,000 would be covered by the mortgage loan.

Assuming that you successfully obtain an agricultural mortgage, you'll need to make monthly mortgage payments that include both the principal loan amount and the interest. These payments will be spread out over a pre-agreed term of, say, 25 years. You may also have the option to make additional payments towards the principal loan amount to reduce the term of your mortgage and save on interest charges.

It's important to keep in mind that agricultural mortgages require a sound business plan that details how you plan to generate income from the farm. This is because the lender needs to ensure that you can repay the loan over the term of the mortgage.

Commercial Mortgages

Commercial land finance can be obtained through a commercial mortgage, which is an option for those looking to purchase land for commercial purposes, such as office buildings or business units to be leased or sold. A deposit of 20% is typically required by lenders to secure a commercial land mortgage.

When would you use a commercial Land Mortgage?

For example, a property developer wants to purchase a piece of land to build an office block. They could apply for a commercial land mortgage to finance the purchase of the land and the construction of the building.

Woodland Mortgages

Purchasing woodland or Amenity Land in the UK is possible, but it's important to note that changing the status of the land can be difficult. Woodland or Amenity Land can be used for a variety of purposes, such as wildlife sanctuaries or as an investment opportunity. If you're considering taking out a woodland mortgage, you'll need to have a clear plan for the use of the land that is acceptable to the lender. Deposits required for a woodland mortgage typically range from 20-50%.

When would you use a Woodland Land Mortgage?

For example, John wanted to purchase a woodland in the south of England. He spoke to a specialist mortgage adviser and decided to apply for a woodland mortgage. He had a clear plan of using the land for nature conservation purposes. He provided this information to the lender, along with the required deposit of 30%. The mortgage was approved and John was able to purchase the woodland.

It's recommended that you explore the possibility of re-categorising your land before applying for a loan. If you're in the process of re-categorising your land, it's important to inform your adviser so they can ensure that your land mortgage is still suitable for your needs. 

Can You Get a Mortgage for Land?

Land mortgages are generally seen as riskier for lenders than residential mortgages due to the time it takes to sell land as opposed to property. This means that land mortgage applications are carefully evaluated. To increase your chances of approval, you should consider the following:

  • Providing a higher deposit, which will reduce the lender's risk.
  • Having a clear and detailed plan in place for the development, including any valuations that you may have obtained.
  • Having relevant planning permission in place, which will strengthen your application.
  • Maintaining a strong credit score, which will support your application.
  • Offering other assets you own as collateral to secure the loan, which may make the lender more comfortable with the risk.

When you are ready, like any mortgage, you can apply for a mortgage promise.

Land Mortgage Fees and Interest rates

When buying land in the UK, you need to consider different fees. These may include arrangement fees, stamp duty, legal fees, and valuation fees.

Valuation fees are ongoing and required if you're building a house on the land. You'll be responsible for paying them, even though the report benefits the lender.

Legal work, called conveyancing, is necessary when purchasing land in the UK. It involves checks to ensure the land is suitable for building.

Arrangement fees are charged by the lender and possibly the mortgage adviser, varying between lenders.

Land mortgage interest rates can change based on economic factors like the Bank of England base rate, similar to residential mortgages. Typically, you can expect a minimum interest rate of 4%, but your actual rate will depend on your Loan to Value ratio.

For more insight on stamp duty on land, consider reading: Do you pay stamp duty on land? 

Looking For Land Mortgage Advice?

If you're thinking about your mortgage options ahead of buying land...
We can help you find a mortgage specialist to offer you the very best advice. Complete our Sunny Fact Find form to provide us a bit more detail about your circumstances and we'll find the best-suited adviser for your needs.
Your appointed adviser will contact you to discuss how they can help, you decide how to proceed.

Land Mortgage alternatives

If a Land mortgage is not the right option for you, you may be able to consider these alternatives:

Raising capital with other assets

If you have existing equity in your assets, it may be possible to finance the purchase and build costs of land through a residential mortgage. However, lenders will assess each application individually to determine whether this is a viable option. To ensure this is a suitable approach, it's important to check with your lender and their policies.

Use a bridging Loan

If you have a clear plan for your project and have obtained the necessary permissions, bridging loans can be an alternative financing option. Bridging loans are available for a period of around two years, giving you time to complete your project. At the end of the build, you can have your newly built property valued and re-finance the bridging loan by raising a residential mortgage on the property. For more information, read our insight: Can you Get a Bridging Loan to Buy Land?

If you're planning on letting your properties once built, you may want to consider a Bridge to Let mortgage as an alternative.

Bridging loans typically have higher interest rates and fees than traditional mortgages, so careful consideration and planning should be taken before going down this route.


Can you get a mortgage for Land to build a house?

If you're looking to build a house on land, you can consider applying for a Land Mortgage. This type of mortgage can be in the form of a development loan or commercial mortgage, depending on whether you plan to sell the property for commercial gain after the build is complete.

Can you get a mortgage for land without planning permission?

Obtaining a mortgage for land without planning permission is challenging. It raises doubts about the land's value and usability. Only a few lenders will consider an application in such a case. Obtaining planning permission for the land can increase its value and help you secure a land mortgage.

How do you get advice on land mortgages?

If you are unsure where to get started with mortgage advice and land mortgages, complete the Sunny Fact Find. The answers you provide help us to find the best-suited adviser. Your adviser then contacts you for a no-obligation conversation on how they can help. You decide how to proceed..


Land Mortgage Advice

If you're unsure where to start with obtaining a land mortgage, still wondering, can you get a mortgage for land? Then complete the Sunny Fact Find. The answers you provide help us to find the best-suited adviser for your needs. Your adviser contacts you to discuss how they can help, and you decide how to proceed.


Stuart is an expert in Property, Money, Banking & Finance, having worked in retail and investment banking for 10+ years before founding Sunny Avenue. Stuart has spent his career studying finance. He holds qualifications in financial studies, mortgage advice & practice, banking operations, dealing & financial markets, derivatives, securities & investments.

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