Getting a mortgage to buy land - what to consider

Many people are looking to buy houses with land and buildings, agricultural or farmland, or plots of land in rural areas. Whether you are a farmer expanding your holding, a person looking to develop a land-based rural business, or someone looking to buy or build your dream home with space in the countryside, buying rural land is different to buying a house.

Most buyers will need a mortgage to fund the purchase of a house and/or buildings with land or land with no buildings (often called bare land). Here we look at the deposit you’ll need, how a bank or lender would assess your ability to repay the mortgage, and how the type of land/property and what you intend on doing on the land can affect the mortgage you could get. 

Loan to Value (LTV)/Deposit 

Your available deposit will be a key factor determining if you can get a mortgage. 

For residential houses with land the loan to value will be at most 80-85%, so you need to pay at least 15-20% of the purchase price as a deposit.

For commercial properties with land the loan to value will be at most 70%, so you will need at least 30% deposit.

Your income/serviceability

The next factor will be your personal income(s) for a residential mortgage, or the income from business activities generated from the land or property for a commercial mortgage. A bank needs to be confident that your income will allow you to repay the loan comfortably.

For a residential mortgage serviceability is based on up to 4.5 to 5 times your sole personal salary or up to 5 times salary for joint income mortgages with some residential lenders for standard properties. However, for rural type properties a good rule of thumb is 4 times joint salary.

For a commercial mortgage, serviceability is based on the income you will generate from the business activities you plan on the property. Income dependent on future planning applications being approved cannot be used in the calculations. 

A good place to start is with a cash flow. We've provided some cash flow templates for you here. These help you demonstrate your vision for the enterprise to lenders, and calculate your mortgage serviceability over the next three years.

The type of land or property you are buying 

Houses with land and buildings

Residential mortgages are available for houses with land. Some mainstream lenders will lend against up to 10 acres; others will lend against properties with much larger acreages. 

If you are buying a large country house with land, or if you plan to run a house and smallholding, only for your personal enjoyment, a residential mortgage will be the option for you. 

However, in some cases, mortgage valuations can come back saying that houses have too much land and/or too many buildings, or the nature of the buildings doesn’t suit the house. In these situations, it may be necessary to build a case for a commercial mortgage.

Land and buildings, with no house

If the land has buildings and the ability to operate a business immediately, then a commercial mortgage and the parameters above will apply.

If you are looking to buy land and buildings with no house for your own personal (non-business use), lenders are harder to find. There are secondary lenders that may lend at 50-60% LTV, so you would need a 40-50% deposit. They offer interest rates at 7% or more, and we don’t tend to work with these expensive lenders.

Land only

Finance for a block of land or field is not usually a problem for established and well-managed farms or rural businesses looking to expand. However, for those looking for land for their own personal use, such as for your own horses, hobby farming or non-profit making smallholding it is harder. This is because land is seen as a commercial asset by lenders. 

To get a mortgage from a high-street or other prime lender for a plot of land, you need to present a commercial lending case with your ability to make repayments based on the income from the business activities you plan to run on the land. You cannot use personal income to demonstrate affordability. 

But, for small plots of bare land without buildings, it is unusual for the income generated to be sufficient to service borrowing. You would usually have to get a mortgage from a more expensive secondary lender with a 50-60% LTV. 

Other financial considerations when buying land

Remember you must also be able to pay for any mortgage, legal and removal fees and these cannot usually be added to your mortgage.

You should also get advice from an accountant experienced in agricultural land to advise you on Stamp Duty Land Tax (SDLT). The rate you will have to pay will be dependent on the type of land and buildings and your intended use. 

Other options to finance land purchases

If a mortgage doesn’t look viable for you now, there are other routes you can explore such as:

• borrow from a family member
• raise equity from other properties you own by either selling them, remortgaging or using a second charge lender. These lenders might lend up to 75% of the value of your existing house on top of your first charge mortgage lender
• use a combination of the above

Once you have established your commercial enterprise and built additional facilities or buildings, you can refinance any family loans, second charges or higher rate loans with a new loan from a high-street or prime lender.

Legal aspects to mortgages for land

Along with the usual conveyancing checks, you should get legal advice from experienced rural solicitors to check the following on the land you intend to buy. Lenders will want to see proof of these if they exist. 

• Right to access/rights of way
• Private drainage – i.e. cesspits and septic tank outflows
• Boundaries and boundary ownership
• Existing grazing agreements and types – i.e. licences and tenancies
• Sporting rights – i.e. any long or short-term legal interests or leases for shooting or fishing
• Mineral extraction rights
• Water abstraction rights
• Riparian (next to water) landowners’ responsibilities and rights
• Wayleaves and easements
• Subsidy and grant schemes – transfer of ownership and if you, as the buyer, have any ongoing obligations.

Plan ahead with the right advice

It’s crucial to get your plans in place early and to get them right – you don’t want to miss out on the opportunity to buy the land or house of your dreams. Buying land is a large investment, and so professional support at an early stage will help your purchase run smoothly and quickly.