Your lender will be able to lend you money for this stage of the process specifically, and you may find that you can split your mortgage so that you have a separate mortgage agreement for the land than you do for your building process.
This is because the land is valued separately from the house itself, so it makes sense for a lender, in this high risk agreement, to arrange a different a distinctive set of conditions for its purchase. However, it’s rare for a lender to lend on the basis of land alone.
How much can you borrow?
Most lenders, in a traditional arrears mortgage arrangement, will lend you between 50% and 85% of the cost of the land.
You’ll need to provide a number of details to the lender as you apply for your mortgage, including – crucially – whether you have planning permission for the building you want to complete.
It’s not always the case that you need to have planning permission in place, as this varies from lender to lender, but it’s rare that you’d be given a mortgage on land required for a self-build if you don’t have planning permission already.
This is why it’s advisable to seek planning permission as soon as you possibly can and before you approach a lender.
It’s also best for you to seek planning permission from a practical point of view, if you’re planning on a self-build. The last thing you want is to get into a financial agreement and set your hopes on building your home on the land you’ve bought, only to find that you can’t complete the project after all.
The planning permission you seek should have a minimum of 12 months left on it, giving you 12 months to begin the work. This means that if there are any other hold-ups once you’ve been lent the money you need, you still have enough time to get the process moving before the expiration date of the planning permission.
The additional costs
You’ll find that there are several different additional costs to consider at the time of purchasing land, and these will come largely from your lender. These include:
- An application fee
- A valuation fee
- Legal fees
- Stamp duty if your land is valued at £125,000 or above
- A lender fee
- A broker fee
What you should provide
Your lender will need several details from you before making a decision on your loan application.
They will need to know the price of the land you want to buy, and what money you’re able to put down yourself, as this determines how much additional money you need.
They’ll also want to know what you want to use the land for, what permissions you’ll need, and whether you already have them.
Finally, they’ll want to know what your resources are when it comes to using the land for your intended purpose.
In the case of a self-build project, this means the lender will want to know that you’ve got detailed plans in place already regarding completing the build. This is so make sure they know you’ve got the best possible chance to use the land the way you want to.