Buying land with planning permission
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Buying land with planning permission
Turning land into property starts with finance
A residential mortgage is simply a loan that is secured on a property. A house or other building has a market value that allows it to be used as security for the loan. But what about when you want to buy the land itself? Land obviously has a value, but obviously nothing like as high as land with a property already on it. If you want to buy land to build a house, or as a development site which will hold several newbuild homes, is it possible to get a loan?
The answer is yes – as long as that land has planning permission. But mortgages for land are very different to a standard residential mortgage, The market for land is more specialised than traditional residential lending, so many lenders prefer to avoid land finance. This means approaching a specialised lender and, at Rangewell, we are ready to help
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Land can be a valuable asset. It is highly sought after by developers, businesses in need of storage and resources and agricultural users. Its supply is finite – but despite this, lenders often see land finance as a risky proposition. At Rangewell we can provide solutions.
In the UK, land is not only in limited supply but its use is carefully regulated. If you are a developer planning a new-build home - or even an estate - you will need land with planning permission in place or, at the very least, a clear indication that such permission will be available.
The price of land suitable for building, and with outline planning permission in place will vary across the country and with the size and desirability of the plot. It can range from a few tens of thousands in remote areas, to hundreds of thousands in desirable locations close to London or other major centres.
The presence of planning permission is, therefore, crucial. Often, land is sold with permission already in place for a building or use change that simply hasn’t been utilised by the current owner. Exactly how much a plot of land will cost depends on several factors, notwithstanding its location, size, proximity to transport links and whether it benefits from any type of planning permission. Land sold with planning permission is always more expensive than that without. If you can find unused residential land with planning permission in place, it is potentially worth much more than the same plot without permission – but you will still need specialised help to arrange the funding you need to buy it.
There are three basic scenarios when buying land insofar as planning permission is concerned:
- the land has no planning permission
- the land has outline planning permission
- the land has detailed or 'full' planning permission for a building for which a set of plans has been submitted and approved.
Before proceeding to purchase land, it is vital to establish with the local authority that they will ultimately allow you permission to bring your plans to fruition, otherwise there is no point in buying it in the first place.
But you need to be careful. Acquiring land with planning permission already granted doesn't necessarily guarantee that you will be able to build on it. There may be restrictive covenants attached that preclude you. This is an area your lawyer should carefully check.
Finding suitable land with planning permission
You can approach local estate agents in a n area you are interested in who may know of plots for sale.
Another approach is to buy at auction. Plots will be found in the catalogues of upcoming sales. Obviously, buying land at auction means a limited amount of time to conduct the research and legal work and therefore buying land this way carries significantly more risk.
Whatever route you go down, further information about both land and property can be found on the Land Registry website. For £2 you can search the detailed history and ownership of property including information on the land, planning permission and rights of way.
The legal process
The legal procedure for buying land is less complicated than buying property, but It should always be conducted by a solicitor specialising in land transactions. They will be able to answer important questions relating to issues such as permitted use, boundaries, footpath or other public access and rights over the land issues.
The lawyer will check that the land has clear title that it is legitimately for sale, and to ensure that there is nothing that could affect the stability of the land such as previous mining, flooding etc. They will also check the legal documentation relating to the size, scale and dimensions of the site to ensure that you are actually buying what you think is being sold.
Once your lawyer is satisfied that all is in order and you are sure that you have, or will get the necessary approval for your intended use, then it is usually safe to proceed to purchase.
Getting the funding you need
As land is a valuable commodity often quickly snapped up by other buyers, you may need to start securing the funding you need before you have even found your ideal plot.
There may be several types of funding to consider.
Self build mortgage
Most people considering a land purchase for the first time are doing so because they plan to build their own house. Without a property already in existence, a standard residential mortgage is impossible - instead, you must turn to the specialist self build mortgage.
A self build mortgage is in effect part land mortgage, part mortgage based on the planned property that forms the project. Unlike a traditional residential mortgage, the money is provided by the lender in stages - one to build the land, and then additional stages to provide cash to purchase building materials and pay for the work to be done.
A land mortgage
As its name suggests, a land mortgage is intended to fund the purchase of land that has not been built on. Getting a land mortgage often requires a much greater investment on the part of the applicant than a standard residential mortgage, because land may be more difficult to sell on - meaning less security is provided for the lender. Regulated lenders are far less willing to offer such high-risk loans to mortgages without a property on it. The market for land sales is slower and of much greater risk to them. The interest rates for a land mortgage are therefore typically slightly higher than that for a residential mortgage.
With large sums involved, even a fraction of a percentage point will affect your profitability. We will aim to secure the lowest possible rate on the best terms, and we can also negotiate for your interest to be “rolled up” so that you only have to pay it at the completion of the loan term or point of settlement – this leaves more money available to you for your project.
With a properly presented application and a desirable plot rates as low as 4% are possible for land-only mortgages.
There is also the issue of Loan to Value or LTV ratio to consider. it is possible to get a residential mortgage with a deposit as low as 5% (representing a 95% LTV), Most land-based mortgages have a loan-to-value ratio of 70% or less, meaning it will be necessary to raise 30% of the land price as a deposit. If you are looking to your land mortgage for your primary home that deposit will need to be represented as savings. However, if you currently have a property, even if it has a mortgage, it is often possible to leverage the equity on it to provide an effective deposit on your land purchase.
Your financial situation will also be important when n looking for a riskier land mortgage. Expect the lender to perform stress testing on your income before agreeing to the loan. Lenders need to know that you represent a good risk and so your income, outgoings and debt management history are all key factors
Commercial Development Finance
Commercial property development finance is designed to fund the build of new commercial property. When looking to fund the build of a commercial property, the potential value of the finished property will be key.
Funding can be more difficult to secure than residential development projects, as fewer lenders understand the commercial property market.
We work with lenders across the entire lending sector and know those keen to fund commercial and mixed-use schemes across the UK. Our team of experienced advisers will take the time to fully understand the commercial realities of your project before talking to lenders and negotiating terms on your behalf.
A Bridging Loan is a short-term loan secured against property. Bridging loan lenders will provide construction finance of up to 65% of the value of the property. You can access the funding within a few weeks (depending on the nature of the project and your circumstances) and loan periods can range from one month to three years. The property can be residential, such as buy-to-let flats, or commercial, such as offices, factories or warehouses.
Bridging Loans are usually repaid quickly, either by the sale of the property or by another finance product designed for the long-term, such as a mortgage.
100% Development Finance
100% development finance, also known as joint venture development finance can allow you to develop property without using your own money. It is designed to cover 100% of all purchase and build costs of the project. The lender provides all of the money needed to complete the project, profits are usually shared on the sale. In general, the lender will still charge market rate interest on the amount borrowed and will then look to take between 40-50% of the profit.
The advantage of going down this route is that the lender will usually have a strong track record, meaning they are easy to trust. In addition, there are only two parties involved in the application, making it very easy to manage.
Where interest is charged on the debt, it is usually allowed to roll up.
Mezzanine development finance is designed to bridge the gap between a developer’s available deposit funding and the loan available from the senior lender. By supplementing their own cash with mezzanine finance, property developers can secure the highest return on investment, with the lowest deposit contribution. This can fund a deposit shortfall, or allow you to retain funds for future deals
Mezzanine funders will usually secure their position by taking a second charge over the development to ensure their cash is secured.
Regulated Development Finance
Regulated development finance is used to fund the build of property that will become a primary dwelling of the borrower. This is ideal for self-build projects. Development finance applications become regulated if 40% or more of the property is to be used as or in connection with a dwelling.
Regulated development finance applications may be used when a plot of land is being bought to build a new home, or when planning has been granted for a property to be built in the garden of the client’s current home.
Residential Development Finance
Residential development finance is a type of funding used to finance the building or conversion of a property to provide residential units. It can be used to fund schemes from one unit to large projects creating dozens or even hundreds of homes.
Funding costs will vary widely between development finance lenders, meaning the cost of choosing the wrong lender can heavily affect the profitability of a scheme.
What about cost?
With all types of land finance, securing the most competitive interest rate will be crucial. The costs offered by different lenders will vary considerably, and negotiation is possible with the support of the Rangewell team.
There will also be fees to consider
Arrangement fees are charged by the lender for arranging the loan.
Valuation fees cover the costs of a surveyor to value the land
Solicitors fees for specialist conveyancing
How Rangewell helps secure the funds you need
We can use our property funding expertise to support your land acquisition plan, working to secure the lending that you need. We know all the lenders in the market, and pinpoint those most suitable for your project, and use our reputation and expertise to negotiate on your behalf.
As part of the negotiations, we carry out for you we will try to secure the most advantageous deals on the key aspects of your finance.
We like to make life easy for both our clients, and our lender contacts - so we will provide our applications fully packaged. This ensures there is enough information available to the lender to make an informed decision on the application quickly.
Call us now to get our experts working for you.
REAL EXAMPLES OF WHAT WE CAN DO
Help a developer buy an old house for demolition and replacement
Help arrange finance for an industrial unit operator to buy an adjacent field
Arrange funding for a developer to buy a broenfield site
Arrange funding for a marine engineering business to buy a coastal plot
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