Remortgage to Buy Land

Why Remortgage to Buy Land?

Land purchases come with unique challenges when it comes to financing. Traditional land mortgages are harder to obtain than standard residential mortgages. Lenders view undeveloped land as higher risk because it cannot be lived in and may be harder to sell quickly. As a result, land mortgage interest rates tend to be significantly higher, and deposits of 50% or more are commonly required.

Remortgaging your existing home to raise the purchase price sidesteps many of these issues. Because you are borrowing against an established residential property, you benefit from standard residential mortgage rates, which are considerably lower than specialist land finance rates.

There are several common reasons UK homeowners look to buy land through remortgaging:

• Purchasing an adjacent plot — extending your garden or adding space for outbuildings
• Buying a plot for self-build — acquiring land on which to construct a new home
• Agricultural or equestrian use — purchasing a paddock, smallholding or farmland
• Investment purposes — buying land with potential for future development or value appreciation
• Community or family use — securing land for allotments, woodland or recreational purposes

Whatever your reason, understanding the process and the potential pitfalls is essential before you proceed.

How Much Equity Do You Need?

The amount you can release through remortgaging depends on your property value, your outstanding mortgage balance, your income and the lender's maximum loan-to-value (LTV) ratio. Most high street lenders allow borrowing up to 85-90% LTV, though some may go higher depending on your circumstances.

For example, if your home is currently valued at £400,000 and your remaining mortgage balance is £180,000, you have £220,000 in equity. At a maximum LTV of 85%, you could potentially borrow up to £340,000 in total, leaving you with up to £160,000 to release for your land purchase.

Land prices in the UK vary enormously depending on location, size and whether the plot has planning permission. A small plot of agricultural land might cost a few thousand pounds, while a building plot with planning permission in a desirable area could run into hundreds of thousands.

Before approaching a lender, it is sensible to get a clear idea of the land price, plus any additional costs such as:

• Legal fees — conveyancing for land purchases, including searches and title checks
• Survey costs — assessing the land for access, drainage, contamination and boundaries
• Stamp duty land tax — applicable on land purchases above the current threshold
• Planning application fees — if you intend to develop the land

A mortgage adviser can help you calculate exactly how much you could release and whether the additional borrowing is affordable within your monthly budget.

What Lenders Need to Know

When you remortgage to raise funds for a land purchase, your lender will want to understand the purpose of the additional borrowing. While most lenders are comfortable with capital raising for legitimate purposes, the specifics of a land purchase can raise questions that you should be prepared to answer.

Lenders typically want to know:

• What type of land you are buying — residential building plot, agricultural land, woodland or other
• Whether the land has planning permission — this affects its value and potential use
• Your intended use — personal enjoyment, development, investment or other purposes
• The purchase price — and how this compares to the land's market value

Some lenders are more flexible than others when it comes to capital raising for land purchases. A whole-of-market mortgage adviser is invaluable here, as they can identify which lenders are most likely to approve your application based on your specific plans.

It is worth noting that if you plan to build on the land, lenders may want to understand your broader financial plans, including how you intend to fund the construction. They want to be satisfied that you will not overextend yourself financially.

Your mortgage adviser should be FCA-regulated and able to search across the whole market to find the most suitable deal for your circumstances. Different lenders have different policies on capital raising, and the right adviser will know which ones to approach.

Types of Land and Their Implications

Not all land is created equal, and the type of land you are buying has significant implications for both the purchase process and your future plans.

Building plots with planning permission: These are the most straightforward to purchase and typically command the highest prices. The existence of planning permission means you can proceed with construction, subject to meeting the conditions attached to the consent. Building plots are attractive to lenders if you later need further finance for construction.

Building plots without planning permission: These carry more risk, as there is no guarantee that planning permission will be granted. Buying land with the intention of applying for permission can be a gamble, though some buyers are comfortable with this approach if the land is in an area where development is likely to be permitted.

Agricultural land: This is generally the cheapest type of land, but it comes with restrictions on use. Agricultural land cannot normally be used for residential development without a change of use through the planning system, which can be a lengthy and uncertain process.

Woodland and amenity land: Woodland can be purchased relatively cheaply and offers recreational and environmental benefits. However, there are restrictions on what you can build or do with it, and access can sometimes be an issue.

Garden land: Buying land adjacent to your existing property to extend your garden is common. This can add value to your home, particularly if the additional land provides scope for future development or simply makes the property more attractive.

Whatever type of land you are considering, proper due diligence is essential. This means carrying out thorough searches, checking boundaries, understanding access rights, and investigating any covenants or restrictions that might limit what you can do with the land.

Legal Considerations When Buying Land

Buying land involves a number of legal considerations that differ from a standard house purchase. Using a solicitor or conveyancer with experience in land transactions is strongly recommended.

Key legal issues to be aware of include:

• Title and ownership — ensuring the seller has clear legal title to the land and the right to sell it. Unregistered land is more common than you might think, and this can complicate matters.
• Boundaries — land boundaries are not always clearly defined, and disputes with neighbours can be costly and time-consuming. A professional survey can help establish precise boundaries.
• Access rights — does the land have legal access from a public road? Without a right of access, land can be practically useless, even if it has planning permission.
• Easements and covenants — these are legal obligations attached to the land, such as rights of way for neighbours, drainage easements or restrictive covenants that limit what you can build.
• Planning restrictions — even if the land has planning permission, there may be conditions attached. Check these carefully, as failure to comply can result in enforcement action.
• Environmental issues — contamination from previous industrial use, flood risk and protected habitats can all affect what you can do with the land and its value.

Your solicitor will carry out searches with the local authority, the Land Registry and other bodies to identify any issues. While these searches cost money, they provide essential protection against buying land with hidden problems.

Stamp duty land tax applies to land purchases in the same way as property purchases. The rates and thresholds are subject to change, so check the current HMRC guidance or ask your solicitor for the latest position.

Alternatives to Remortgaging for Land Purchase

While remortgaging is often the most cost-effective way to raise funds for a land purchase, it is not the only option. Depending on your circumstances, one of these alternatives might be more suitable.

Land mortgage: Some specialist lenders offer mortgages specifically for land purchases. These typically require larger deposits (often 50% or more) and carry higher interest rates than residential mortgages. They can be appropriate if you do not have enough equity in your home or if you prefer to keep your residential mortgage separate.

Bridging loan: A short-term bridging loan can provide fast access to funds for a land purchase. These are expensive, with interest rates significantly higher than standard mortgages, but they can be useful if you need to move quickly and plan to refinance within a few months.

Personal loan: For smaller plots or cheaper land, an unsecured personal loan might be sufficient. Interest rates are higher than mortgage rates, but the process is simpler and faster, with no need for property valuations or legal fees related to your home.

Savings: If you have cash available, buying land outright avoids interest charges and keeps your mortgage unchanged. However, you should ensure you maintain an adequate emergency fund.

Further advance: Your existing lender may offer additional borrowing on your current mortgage without requiring a full remortgage. This can be simpler and avoid early repayment charges, though the rate offered may not be as competitive.

A qualified mortgage adviser can help you compare these options and determine which approach offers the best overall value for your specific situation. The right choice depends on the amount you need, the urgency of the purchase and your wider financial position.