Can we buy a plot of land with a mortgage against our home?
Answered on 19 September 2024 by Nicholas Mendes
We have a property worth £435,000 with no mortgage, we have made an offer on a plot of land is it possible to have another mortgage against our property? If so what product should I be looking at? I am 51 and husband 54, the house is currently on the market so ideally low early payment penalties should apply?
Yes, it's possible to use a mortgage against your existing home to finance the purchase of a plot of land, although the specifics can vary depending on your financial situation and lender.
Raise Money for Plot of Land
There are different options for this type of purchase. You could either raise a remortgage on your existing property to fund the purchase of the land and the build cost of the new house (subject to how much you actually need) or raise part on your current home and then the rest as a self build mortgage on the new plot. If you decided to raise a self-build mortgage on the land, then it would need to have outline planning as a minimum.
Here's what you need to consider:
- Equity release - if you have sufficient equity in your home, you may be able to release some of that equity through a remortgage or a home equity loan. This would provide you with funds to purchase the plot of land
- Loan-to-Value Ratio - lenders typically have limits on the loan-to-value (LTV) ratio they're willing to lend for land purchases. This means they'll only lend up to a certain percentage of the value of the land. You'll need to ensure that the amount you're borrowing against your home, combined with any existing mortgage balance, doesn't exceed this limit
- Purpose of the land - lenders may have restrictions on the type of land they're willing to finance. For example, they may be more reluctant to lend for land that is considered high-risk, such as agricultural land or land without planning permission
- Planning permission - if you intend to build on the land, lenders may require evidence of planning permission before approving the mortgage. Without planning permission, the land may be considered less valuable as collateral
- Legal considerations - purchasing land involves legal processes such as conveyancing and property searches. You'll need to work with solicitors or conveyancers to ensure that the transaction is legally sound
- Financial assessment - as with any mortgage application, lenders will assess your financial situation, including your income, credit history, and ability to repay the loan. They'll also consider the purpose of the loan and the potential return on investment from the land purchase
- Risks - using your home as collateral for a loan to purchase land carries risks, particularly if you're unable to keep up with the mortgage repayments. If you default on the loan, you could risk losing your home
Before proceeding with using a mortgage against your home to purchase land, it's essential to carefully consider the financial implications and seek advice from a mortgage broker. We can help you assess your options, understand the risks involved, and determine whether this approach is suitable for your circumstances.
We recommend to discussing this in more detail with one of our mortgage experts on 0330 433 2927.
Ask The Mortgage Experts answers are based on the information provided and do not constitute advice under the Financial Services & Markets Act. They reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them. We recommend you seek professional advice with regard to any of these topics where appropriate.