Loans for land

By Stephen Clark | Tuesday 19th April 2022 | 3 minute read

When potential home buyers are looking to purchase a property, building one may also cross their minds.

Loans for land

How you can finance a land purchase

The concept sounds great until they realise standard mortgages cannot offer all the funds needed because it is secured from a finished dwelling and not a parcel of land.

So how can you finance the purchase of land? The answer - a land loan. If you then want to develop your land and require financing you may then be asking whether you can get a self-build bridging loan?

Both land loans and self-build loans are a type of bridging loan that can be accessed relatively quickly and easily providing you have property that you're able to use as security. Want to know more - what land loans are and how they work? Read on.

What is a land loan and how does it work?

A land loan, also known as a lot loan, is used to finance the acquisition of a piece of property. If you want to acquire a piece of land to build a house on or use for business purposes, you can get a land loan. The type of loan you get will be determined by where you're buying land and how you want to use it.

A land loan is frequently confused with a self-build loan or construction loan, which is a different sort of loan commonly utilised by those who want to build a home. So, what's the difference between the two? If you want to buy land and start building right away, you'll most likely need a self-build loan if it's going to be a residence, or development finance if it's for commercial purposes. Self-build loans are designed for aspiring home builders who are ready to start working on their project right away and have everything planned out.

Land or lot loans, on the other hand, are a preferable option for aspiring home builders who have a plan but don't want to start building and financing a home right now. A land loan is likely a better option for you if you have conditions that will delay your construction project (or if you're still in the design and planning phase of the property).

Loans for undeveloped land

If there are no services laid on, such as electricity, gas or sewage and there are no existing structures then the land will be deemed as an undeveloped site.

Land plot by coast

Because funding for undeveloped land can be more difficult to source, it's critical to prepare a thorough plan for how you wish to develop the site. This will demonstrate to lenders that you're serious about the project and don't constitute a significant risk.

If you're able to put down a cash payment (usually between 30-50% depending on whether the land has planning) you'll likely be able to meet several lenders' criteria.

But what if you don't have the 30-50% cash to put into the land purchase?

If you have equity in another property or land, most lenders will accept that as security against the land loan. The amount a lender is willing to lend you will largely depend on the equity and property type that you're offering as security.

Can I borrow money to buy land in the UK?

A land loan enables borrowers to purchase land. The land loan resembles other forms of short-term bridging loans, usually for no more than 24-months and is typically repaid via the sale of the land or development after the loan term, or it is repaid through the borrower refinancing onto a longer-term traditional mortgage.

Land loans are available for land throughout the UK including Scotland and Northern Ireland.

Where do I start looking for a land loan?

There are two methods of seeking this type of loan, either you go direct to a lender or you approach a bridging loan broker.

Bridging loan brokers like Finbri aim to know each lender's appetite for different land deals, which varies depending on the borrower, the land value, the location and the type of land in question. Not all lenders will lend to first-time property developers and some won't lend on commercial or agricultural land. It's a broker's job to know which lender will want to finance which type of land deal and it's this knowledge that can make the difference between a land purchase being completed within the seller's timeframe or the sale falling by the wayside. 

We use cookies. By using the website you agree with our use of cookies. For more information, please read our privacy policy.

Okay, got it!