I own a house mortgage-free worth £180,000. I'm considering the purchase of a piece of land at around £125,000. I'm assuming the land will not be mortgageable? My question is, what are my options for raising the funds?
what are my options for raising the funds?
Assuming you have decent credit, you can either mortgage your home or apply for a land loan in order to purchase the land. Since both your home and the land have value, either one can act as collateral in case you default on your loan. Land loans tend to have a higher interest rate and down payment, however. This is because banks see land loans as a riskier investment since it's easier for you to walk away from an empty plot of land than your own home.
Your assumption is wrong. Land is definitely mortgageable.
- If you just want the land for agricultural use, then companies such as AMC will lend
- If the land is for self-building, self-build mortgages exist which assume that there will only be land at the start
On the other hand, it may be simpler and attract a lower interest rate if you just mortgage your existing house. (I believe most companies call this "remortgaging" even if you have no existing mortgage).
Any loan will be subject to proof that you'll be able to pay it off, like any other mortgage. If the land itself is mortgaged you would need a deposit (i.e. the value of the mortgage would need to be less than the value of the land).