Investing in land using a commercial mortgage can be wise as long as you purchase the right type of land in the right area.
Why buy land?
There are many reasons to buy land. An individual can purchase land for their personal use, and land adjacent to property could be purchased to extend the garden or to build an extension on.
Investors purchase land hoping that its value will appreciate. If the land has no planning permission, successfully applying for planning consent will increase the value of the land.
A developer needs land to build on, while a business can buy land for car parking space.
Points to consider before purchasing
Land varies considerably in price. You could spend between £5,000 to £15,000 per acre. This price you pay is dependent on the locality, the quality of the land and whether it has planning permission. You need to research the market thoroughly to make sure that you are paying a fair price.
You need to focus on areas with potential for growth. For example, if there is a new road system or transport links, the growth potential of an area will be increased.
Although the land may seem good, a chartered surveyor needs to examine the plot to make sure that it is sound.
Your research into land must include finding out if there are any issues such as rights of way and power lines. If the land is away from the road and is separated by land that is not part of the plot, there could be restricted access.
Land investment should be seen as long term investment. Don’t expect land to increase significantly in value over a brief period.
Financing the purchase
After you have found land you want to purchase, unless you are a cash buyer, you will need a loan. It can be difficult and time consuming to find the best loan deals. Ascot Mortgages, with a wide knowledge of many lenders, can find the best commercial mortgages to purchase land.
Commercial mortgages to buy land are generally shorter than property mortgages. Expect a loan period of five years or less.
A typical mortgage amount will be around 75% of the value for the land, with the borrower expected to have funds to finance the remaining amount. If the land was purchased under market value, a loan equal to 100% of the price paid can be obtained providing that this 100% equals at least 75% of the open market value.
The land does not necessarily need to have planning consent to be eligible for a loan. If planning permission is obtained and the land increases in value, the loan can be refinanced to reflect the change in value.
If you have an adverse credit record, this will not necessarily prevent you from getting a loan, and if the borrower wants to develop the site, Ascot Mortgages can help with development finance.
If you are considering purchasing land, talk to us about all your finance options.