Getting a land mortgage is rarely a straightforward task. This is mainly due to a lack of available options, as most major lenders offer comparatively few (if any) specialist loans for land.

Hence, shopping around for a great deal on a landlord mortgage typically means looking beyond the usual High Street banks.

The UK’s specialist lending community has a wide variety of loan options available for land purchases. Examples of this include development finance loans, bridging loans, commercial loans, and various other types of secured loans.

However as many of these lenders do not offer their services directly to borrowers, applications must be submitted via an approved broker.

Can I get a mortgage for land?

Yes, land mortgages are available from a wide variety of specialist lenders. However, qualifying for a land mortgage can be more difficult than obtaining a conventional mortgage.

With a traditional home loan, the funds are secured against the property you are purchasing. With a land mortgage, the property has not yet been built. Therefore, if the lender issues a loan that also covers the costs of building the property, they are taking a much bigger risk.

Lenders, therefore, need to see evidence of what the borrower intends to do with the land after it has been purchased. A full independent valuation of the proposed property or development must also be provided, which will be used as the basis for the maximum loan value issued.

What are the different land mortgage options available?

Specialist lenders offer a variety of different types of land mortgages, in accordance with the requirements of the applicant. Examples of these include:

• Self-build mortgages
• Agricultural mortgages
• Woodland mortgages
• Development Finance

Ensuring you apply for the right mortgage is essential in order to get the best possible deal. If in doubt, consult with an independent broker, who will ensure you understand the unique features of the land mortgage options available.

Do I need to get planning permission ahead of time?

Not necessarily, but it will certainly broaden your borrowing options. When planning permission is granted on a plot of land, its value increases significantly. It also reassures the lender that your plans for the land can go ahead.

Obtaining a mortgage for land without planning permission is still possible but can be much more difficult. If you intend to apply for planning permission in the future or have other plans for the land you are purchasing, your broker will advise on the appropriate loan options.

What are the different types of planning permission for land?

There are two main types of planning permission that can be obtained for a plot of land. Both of which could significantly boost your chances of qualifying for a competitive mortgage:

Outline planning permission (OPP)
This is an agreement in principle issued by the local council, where one or more dwellings are to be constructed on a plot of land. OPP agreements are valid for a limited period of time (typically three years) and will need to be renewed once they have expired.

In order to qualify for a land mortgage after obtaining planning permission, your lender will expect to see formal evidence of the following:

• The overall layout of the proposed dwelling(s)
• The appearance of the dwelling(s)
• Upper and lower limits for the height, width, and length of the dwelling(s)
• Site access details
• Landscaping proposals

Full planning permission (FPP)
Typically valid for a longer five-year period, full planning permission is granted upon meeting more extensive criteria. An application for FPP must satisfy all the requirements above, supplemented with detailed scale drawings of the property (or properties) and more detailed information.

FPP is always desirable in the eyes of lenders, as it adds considerable value to any plot of land. With FPP, a plot of land becomes more attractive to potential buyers, making it a safer asset to secure a loan or mortgage against.

What needs to be in my financial plan?

A detailed financial plan will need to be presented as part of your application. This is essentially a summary of all estimated construction costs, along with estimated labour costs, the logistics of how the property will be constructed, contractors who will be involved in the project, and so on.

Essentially, this is where you need to convince your lender that your project is not only viable but also economically sound. In addition, almost all lenders impose restrictions on the types of properties they will lend against and even the materials they are made of.

For example, brick-built properties are the only acceptable properties for some lenders.

Your financial plan, therefore, needs to be as detailed and comprehensive as possible. The clearer you outline your intentions and the specifics of your project, the more likely you are to qualify for funding.

How do land mortgages work?

Land mortgages work similarly to development finance loans, in that the funds are released in a series of stages. For example, the first instalment may be released to cover the costs of the land itself, followed by several subsequent instalments for key phases of the construction project.

This involves the use of surveyors hired by the lender to monitor the progress of the project. When the bank is satisfied that a key phase of the project has been completed, they will release the next instalment.

It is also possible to arrange a land mortgage that is paid in the form of a single lump sum. Bridging loans, for example, can be arranged and accessed in a matter of days, making them ideal for time-critical purchases and investment opportunities.

When the construction project is complete, the land mortgage can be repaid in the same way as a conventional mortgage. Or, in the case of a shorter-term facility, transition to a longer-term repayment loan.

There’s also the option of selling the property upon its completion in order to repay the loan in full and retain the profits.

How high are land mortgage rates?

Interest rates on land mortgages vary significantly from one product and provider to the next. As a general rule of thumb, the lowest rate you can expect to be offered is around 3%, but a more typical land mortgage rate would be around 4.5%.

With short-term funding options like bridging finance, interest is charged on a monthly basis, often as low as 0.5%. This could make a promptly repaid bridging loan a uniquely cost-effective facility, with no additional fees or penalties payable for early repayment.

How are land mortgage fees charged?

Additional borrowing costs vary on the basis of multiple factors, including the type of mortgage taken out and the issuer.

As with any mortgage, you will incur fees that you will need to consider before applying, such as:

• Application Fees: Also known as arrangement fees, processing fees, and admin fees, which can be anything from zero up to 2% of the value of the loan,
• Valuation Fees: The lender will want to see a formal valuation of the project’s estimated final value, provided by an approved surveyor and paid for by the borrower.
• Legal Fees: All legal fees and conveyancing fees must also be covered by the applicant, which may be charged as a flat fee or a percentage commission on the value of the loan.

Comparing the market with the support of an experienced broker holds the key to getting an unbeatable deal, irrespective of the type of land mortgage you apply for.

Can land be refinanced?

It is always advisable to consider refinancing options as soon as the project is complete. This is due to the fact that interest rates and borrowing costs on land mortgages have a tendency to be higher than those of conventional mortgages.

If the home (or homes) constructed on the land qualify for a standard residential mortgage, significant savings could be made. However, even bigger savings could be made by using a short-term facility (such as a bridging loan) to cover the costs of the project and repay the full outstanding balance as quickly as possible.

For more information on any of the above or to discuss land mortgages in more detail, contact a member of the team at UK Property Finance today.

Established and aspiring landlords alike continue to question the potential benefits of purchasing BTL properties via a limited company. Understandable, given the government’s no-holds-barred approach to BTL legislation over recent years.

Landlords were first hit (and hard) back in 2016, when the government introduced a new 3% stamp duty level on BTL property purchases. Next, policy reforms slashed mortgage and loan interest relief on second homes, which would eventually be removed entirely by 2021.

2019 brought more bad news for landlords in the form of the Tenants Fees Act, imposing much greater restrictions on what tenants could and couldn’t be charged for by property owners.

Whichever way you look at it, turning a profit as a private landlord is becoming trickier all the time. But as demand for quality rental homes skyrockets and average monthly rents break every record in the books, there’s still good money to be made with savvy BTL investments.

In total, the value of the UK’s BTL sector has grown from £239 billion in 2017 to more than £1.7 trillion today.

“There have been many challenges that have subdued investment into the private rental sector over the past few years,” comments Stephen Clark a bridging finance broker.

“But the sector has proved resilient, and we have seen continued demand for finance in this vibrant part of the economy.”

Safety and stability

The property market, in general, remains a relative safe haven for investors. Even the catastrophic events of the past two years have done nothing to quell the public’s appetite for quality homes in desirable locations.

In fact, figures from Nationwide suggest that from March 2020 to December 2021, average house prices in the UK grew by more than 16%.

Responding to demand from homebuyers and investors alike, major banks have been diversifying their mortgage portfolios as of late. BTL mortgage products, in particular, are available in abundance; there were more than 2,235 specialist mortgages at the end of last year.

What’s more, many banks have also been cutting interest rates on five-year fixed mortgages for BTL borrowers as a means to encourage more landlords to make their moves.

“The BTL sector has faced its share of upheaval and changes to regulations and requirements, so it is highly encouraging to see that providers are still keen to attract first-time landlords,” said Eleanor Williams at Moneyfacts.

“Rents have risen at the fastest rate on record, while tenant demand has almost doubled.”

Still, with inevitable Bank of England base rate hikes on the cards, mortgages across the board are not going to get any cheaper than they are now.

But when it comes to maximising profits and minimising tax liability on a BTL property, is it better to purchase homes through a limited company?

The pros and cons of limited company investments

Forming a limited company to purchase real estate is not something that should be done without careful forethought. In addition, the advice and input of an experienced broker could prove invaluable.

From a general perspective, the benefits of using a limited company to purchase a BTL property are as follows:

• All profits generated on limited company BTL property purchases are subject to flat-rate corporation tax at 19%. By contrast, private landlords are subject to standard income tax bands, which are 20% in the normal band and up to 45% for higher-rate taxpayers.
• Mortgage interest is classified as a business expense for limited companies, meaning it is tax-deductible. For private landlords, a tax credit of just 20% can be claimed on mortgage interest payments.
• Revenue withdrawal options are also broader. All profits received by private landlords are taxed, whereas profits taken out of limited companies are only taxed once.
• There are also options for decreasing overall tax liability, such as forming a family investment firm or a limited liability partnership. Assets can also be transferred to family members to avoid or reduce inheritance tax.

Downsides also apply with limited company BTL investments, including the following drawbacks:

• Mortgage options are much more limited for businesses looking to purchase BTL properties, and it can be more difficult to qualify.
• Larger deposits are the norm for these kinds of property investments, along with higher rates of interest and elevated borrowing costs.
• Along with corporation tax, dividends withdrawn from the company are also taxable.
• In order to transfer a property you already own into a company holding, it needs to be sold in the normal way. This means paying stamp duty at the normal rate, along with all associated conveyancing and legal fees, plus capital gains tax.

Despite this fairly even split of pros and cons, more landlords are purchasing properties through limited companies than ever before. In fact, the figures suggest that around 80% of all BTL mortgages are being issued to limited companies.

“Getting the ownership structure right might make a tremendous difference in the amount of tax you pay throughout your lifetime,” commented Rob Dix (the Property Geek).

As a general rule of thumb, experts advise considering forming a limited company where a landlord has a minimum of three private rental properties. By contrast, landlords with two properties or a single rental home may find it more cost-effective to simply hire an accountant to oversee their affairs.

With the Stamp Duty holiday having officially ended, normal rates have resumed. This means that both first-time buyers and movers alike must once again factor Stamp Duty costs into their property purchase decisions.

What is stamp duty?

Getting to grips with the fundamentals of Stamp Duty is fairly straightforward, but essential nonetheless. Stamp Duty is payable on millions of property transactions each year, but not everyone is liable for Stamp Duty payments.

For example, residential property buyers in England and Northern Ireland pay no Stamp Duty on the first £125,000 of the property’s value. In addition, first-time buyers pay no Stamp Duty on the first £300,000 of their home’s market value.

After which, 5% is payable on the price of the property between £300,000 and £500,000. Higher rates apply for properties valued at £500,000 or more.

This means that most first-time buyers are not liable for Stamp Duty payments at all, with most property transactions in the UK falling below £300,000.

Different rules apply in Wales, where Land Transaction Tax is payable on homes valued at £180,000 or higher. Likewise, homes valued at £145,000 or more (or £175,000 for first-time buyers) are subject to Land and Buildings Transaction Tax in Scotland.

But what remains consistent across the board is the requirement to pay this property purchase tax as quickly as possible. You have just 14 days to make the payment in full, which is where a fast-access bridging loan could get you out of a bind.

Stamp duty on second homes

Existing homeowners purchasing a second property in England or Northern Ireland with a value in excess of £40,000 are liable for an additional 3% Stamp Duty payment (on top of the normal sum).

This applies to holiday homes, buy-to-let properties and second homes in general, but does not apply to houseboats, caravans and other non-static homes.

This higher-rate Stamp Duty may also be payable if you complete the purchase of your next home before selling your current home. However, you will be able to apply for a refund of this additional 3% Stamp Duty once the sale of your previous home is complete.

If you need a temporary financial solution to ‘bridge’ the gap between buying and selling, an affordable bridging loan could be just the thing.

Call UK Property Finance anytime to discuss the potential benefits of bridging loans in more detail.

Current stamp duty thresholds

As of October 1^st 2021, the following Stamp Duty threshold came into effect for most homebuyers in England and Northern Ireland:

Proportion of property value	Stamp Duty paid
Up to £125,000	0%
£125,001 – £250,000	2%
£250,001 – £925,000	5%
£925,001 – £1.5m	10%
£1.5m+	12%

Land Transaction Tax (LTT) applicable in Wales as of July 1^st 2021 are as follows:

Property value	Land Transaction Tax paid
£0 – £180,000	0%
£180,001 – £250,000	3.5%
£250,001 – £400,000	5%
£400,001 – £750,000	7.5%
£750,001 – £1.5m	10%
£1.5m+	12%

Home purchases in Scotland are currently subject to Land and Buildings Transaction Tax (LBTT) at the following rates:

Property value	Land and Buildings Transaction Tax paid
£0 – £145,000	0%
£145,001 – £250,000	2%
£250,001 – £325,000	5%
£325,001 – £750,000	10%
£750,001+	12%

Stamp duty on buy-to-let properties

Private landlords have been hit particularly hard by recent tax reforms in the UK and are also subject to higher Stamp Duty payments than conventional homebuyers.

A 3% surcharge now applies on all BTL property purchases valued at £40,000 or over – a full breakdown of current thresholds is as follows:

Proportion of property value	stamp duty paid
Up to £125,000	3%
£125,001 – £250,000	5%
£250,001 – £925,000	8%
£925,001 – £1.5m	13%
£1.5m+	15%

Buy-to-Let properties are subject to different taxation rules in Wales and Scotland – the respective information for which can be found on each country’s official government website.

Bridging loans for stamp duty payments

It is a legal requirement to meet HMRC’s Stamp Duty demands within 14 days of a property purchase being agreed upon. After this, significant penalties may be payable, increasing as the debt remains unpaid.

This is where affordable bridging finance has the potential to save homebuyers time, money and stress. If difficulties are encountered covering Stamp Duty obligations, a short-term bridging loan offers an ideal solution.

Unlike most conventional loans, bridging finance can be arranged within a few working days. This makes it ideal for covering time-critical expenses, where delays could lead to further costs and complications.

In the case of Stamp Duty, a bridging loan could be taken out to cover the required payment and repaid after a few months. Bridging finance is typically charged at a rate of around 0.5% per month, making it a uniquely cost-effective facility when repaid promptly.

A few common features of bridging loans:

• Funds can be arranged and accessed in a few days
• Loans available from £10,000 with no upper limits
• No monthly repayments or initial deposit
• Interest rates as low as 0.5% per month
• Open to poor credit applicants and self-employed workers
• Can be secured against most types of properties
• Ideal for time-critical tax payments

Bridging loans are issued primarily on the basis of two things – security for the loan and a viable exit strategy. In the case of Stamp Duty payments, most bridging loans are repaid when the borrower’s previous home sells, or with personal savings accrued over the course of several months.

It is even possible to repay bridging finance with a conventional unsecured loan or personal loan, which can then be repaid gradually with affordable monthly instalments.

If you have any questions or concerns regarding your capacity to meet your Stamp Duty obligations, call UK Property Finance anytime for an obligation-free consultation.

What other purposes can bridging loans be used for?

The beauty of bridging finance lies in its versatility, as the funds can be used for almost any legal purpose.

Just a few of the most common applications for bridging loans in the UK include the following:

1. Escaping the property sales chain

Bridging finance can grant existing homeowners the spending power of a cash buyer when looking to relocate. Rather than relying on the sale of their current home to fund their move, they can buy their next home with a bridging loan and repay the facility at a later date when their previous home sells.

2. Renovations, restorations and conversions

Sellers intent on selling their properties for the best possible price often conduct repairs and renovations, prior to putting them on the market. Bridging loans are commonly used to fund minor, moderate and major renovations to residential properties, with the aim of repaying the loan when the property sells for an agreeable price.

3. Auction property purchases

Buying a low-cost property at auction means paying the full outstanding balance within 28 days; as bridging finance can be organised within a few working days, it is ideal for funding time-critical purchases and investment opportunities like these.

4. Fast purchases 

It could also simply be that you have found your dream home at an unbeatable price, and you would prefer not to be beaten to the punch by a competing bidder.  With bridging finance, rapid property purchases are possible without having to rely on conventional loans or mortgages.

5. Starting a business 

Bridging finance also has an endless range of business and commercial applications. Many borrowers use bridging loans to raise the funds needed to start a new business, repaying the loan at a later date when their start-up begins turning a profit. Lending criteria for bridging finance are fairly relaxed, making it ideal for entrepreneurs with no provable experience or track record.

How can I get a bridging loan?

The key to getting a good deal on a bridging loan lies in seeking experienced broker support at an early stage. Your broker will help determine your suitability for bridging finance before scouring the market to find the perfect product for your needs.

They will also negotiate on your behalf to ensure you get an unbeatable deal while ensuring your application is processed as quickly and smoothly as possible.

For more information on any of the above or to discuss the benefits of bridging finance in more detail, contact a member of the team at UK Property Finance today.