Land purchase finance for residential and commercial sites

A building produces rent or houses a business that generates profit. A field or a cleared yard does neither, so the lender has no income to underwrite and relies almost entirely on the land's value and on a future event: a planning consent, a build, a sale or a refinance. Land also takes longer to sell than most buildings and its value can move sharply with a single planning decision. Lenders respond by offering a lower share of value than on a let or occupied property, shorter terms and, frequently, a request for additional security over property you already own.

Mainstream banks will sometimes fund land that sits next to an established business they already bank, particularly where the purchase is modest against the company's balance sheet. Most other land purchases go to specialist short-term lenders.

Land deals are more often delayed by the site than by the borrower. Expect the lender's valuer and solicitor to look at:

• Access. A legal right of way to the public highway, and whether a narrow strip owned by someone else (a ransom strip) sits between the land and the road.
• Flood risk. The Environment Agency's flood map for planning shows the flood zone for any site in England; land in higher-risk zones is harder to consent and to fund.
• Contamination and ground conditions. Former works, depots and fuel sites may need a desk study or site investigation; remediation costs come off the value.
• Services. Power, water and drainage capacity, which can be costly for industrial uses.
• Title. Restrictive covenants, overage clauses that pay the seller a share of any planning uplift, and existing rights for neighbours or utilities.
• Planning obligations. Affordable housing and other Section 106 contributions, the Community Infrastructure Levy where the council charges it, and biodiversity net gain all reduce what a site is worth to a developer. GOV.UK's guide to understanding biodiversity net gain explains a requirement that can mean setting aside part of the land or buying off-site units.
• Planning context. The local plan, any planning history, and for previously developed land whether the site is on the council's register; GOV.UK explains brownfield land registers.

The biggest risk is that planning is refused or delayed. Short-term interest keeps rolling while you appeal or redesign, and a loan that reaches its term without an exit becomes expensive to extend. Overage clauses can also take a meaningful share of the uplift you expected. Before borrowing, ask whether an option or conditional contract would let you secure the land without owning it until consent arrives, and whether leasing a nearby building would meet the business need at lower risk. If a second charge over your premises is used, a problem with the land becomes a problem with the building you trade from.