Bridging Loans for Land
In the world of property investment and development, timing is often the key to getting a good deal.
Land bridging loans offer a swift and flexible solution for those looking to secure land quickly, whether for residential, commercial, or agricultural purposes.
Funding is available with and without planning permission, with fast decisions.
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What Are Land Bridging Loans?
Land bridging loans are specialised short-term finance options designed to help investors and developers purchase land rapidly.
Typically lasting between 1 to 36 months, these loans provide the necessary funds to initially secure the land while arrangements for long-term financing or development plans are finalised.
Land bridging loans are secured against the land itself or other valuable assets, offering a degree of flexibility that’s particularly appealing in the property market.
Types of Land Eligible for Bridging Finance
The versatility of bridging loans extends to various types of land, making them a go-to option for a wide range of projects.
These loans can finance:
- Residential land for single homes or larger housing developments
- Commercial land for retail, office, or industrial use
- Agricultural land for farming or diversification projects
- Development sites at various stages of planning and construction
- Land both with and without planning permission
This flexibility allows investors and developers to act on opportunities across different sectors of the property market.
Related: Unlocking Potential: 7 Types of Land You Can Finance with Bridging Loans
Key Features of Land Bridging Loans
Bridging loans for land are characterised by their adaptability to various project needs.
Loan amounts typically range from £100,000 to several million pounds, depending on the lender and the project’s scale. The Loan-to-Value (LTV) ratio usually falls between 65% to 75% for land with planning permission, while land without planning permission might see LTVs around 50% to 60%.
Like all bridging finance, interest rates are higher than mortgages, reflecting the short-term nature and increased risk. Rates can start from around 0.44% per month for the most attractive propositions, rising to 1.5% or more for higher-risk scenarios. These rates can be negotiable based on the specific circumstances of the loan and the borrower.
One of the most appealing aspects of land bridging loans is the flexibility in repayment options.
Borrowers can choose to have the interest “rolled up” into the loan, meaning no monthly payments are required. Alternatively, the interest can be deducted from the loan amount at the outset (retained), or it can be serviced monthly. This flexibility allows borrowers to tailor the loan to their cash flow needs and project timelines.
Costs Associated with Land Bridging Loans
While interest rates form a significant part of the cost, other fees should be factored in when taking out a land bridging loan.
- Arrangement fees: Typically 1% to 2% of the loan amount
- Valuation fees: Necessary to assess the land’s worth
- Legal fees: Cover the costs of both the borrower’s and lender’s legal representatives
These should all be included when calculating the total expense of the loan and planning your project budget.
Uses for Land Bridging Loans
A bridging loan for land can be helpful in a variety of ways.
Refinancing: Re-bridge loans can provide additional time for projects that have encountered delays or need more time to secure planning permission.
Auction purchases: Auction loans enable buyers to meet the tight 28-day completion deadlines.
Securing development opportunities: Developers can use a bridging loan to move quickly on promising land deals without waiting for traditional financing.
Planning permission funding: Planning gain finance can cover the costs of obtaining planning permission, potentially enhancing the land’s value.
Breaking property chains: Buyers can proceed with land purchases even if the sale of their existing property is delayed.
Related reading: What can a bridging loan be used for?
Land Purchases with vs. without Planning Permission
Funding options are available, with or without planning consent.
However, the presence or absence of planning permission significantly impacts loan terms.
Land with planning permission is generally seen as lower risk, often resulting in higher LTV ratios (up to 75% or 80%) and lower interest rates.
Conversely, land without planning permission is considered higher risk, leading to lower LTV ratios (typically around 50% to 60%) and higher interest rates.
Purchasing land without planning permission can be a strategic and profitable move for developers confident in their ability to secure favourable planning outcomes.
However, it’s wise to have a solid contingency plan in case planning permission is denied or significantly delayed.
Eligibility Criteria for Land Bridging Loans
Land bridging loans are accessible to a wide range of borrowers, including individuals, limited companies, partnerships, LLPs, and even offshore entities.
While credit history is considered, it’s not always the primary factor in the decision-making process.
Lenders focus more on:
- The viability of the project
- The value of the land
- The borrower’s exit strategy
Experience in property development or land deals can be beneficial, especially for larger or more complex projects.
However, many lenders are willing to consider first-time developers if they can demonstrate a solid plan and have experienced people on their team.
How to Improve Your Chances of Approval
- Present a clear and viable exit strategy, such as selling the land after obtaining planning permission or refinancing to a long-term mortgage.
- Offer additional security, such as other properties or assets, to potentially increase the LTV ratio or secure more favourable interest rates.
- Demonstrate relevant experience or partner with experienced professionals to reassure lenders of your project’s viability.
- Provide a comprehensive business plan that outlines your project’s feasibility and potential profitability.
Typical Timeframes for Approval and Funding
One of the primary advantages of all bridging loans is the speed at which they can be arranged.
In many cases, the entire process from application to funding can be completed within 2 to 4 weeks. For particularly urgent cases, some lenders offer fast-track options that can reduce this timeframe even further.
However, certain factors can extend the process, such as complex legal issues, delays in providing necessary documentation, or complications with the land itself. Clear communication and prompt provision of information can help keep the process moving smoothly.
Read more: How Quickly Can You Get a Bridging Loan?
explore fast bridging loansExit Strategies
Given the short-term nature of land bridging loans, having a clear exit strategy is paramount.
Your exit strategy should explain ‘how’ you will repay the loan, on or before the terms ends.
Common exit routes include:
Selling the land
Often after enhancing its value through obtaining planning permission or carrying out development work.
Refinancing
To a long-term mortgage or development finance once the project has progressed to a suitable stage.
The importance of a well-thought-out exit plan cannot be overstated.
Lenders scrutinise this aspect of your application closely, as it’s fundamental to their assessment of the loan’s risk.
A robust exit strategy not only improves your chances of securing the loan but also helps ensure you can repay it without complications.
Bridging loan exit strategiesAdvantages of Using Land Bridging Loans
Land bridging loans offer several key benefits.
- Speed: Funding can be secured much faster than traditional financing methods.
- Flexibility: These loans accommodate a wide range of project types and scenarios.
- No monthly payments: The option to roll up interest payments can be beneficial for projects with tight initial cash flow.
- Ability to act on opportunities: The quick approval process allows investors to capitalise on time-sensitive deals.
- Suitability for complex situations: These loans can be used in scenarios where traditional mortgages might not be available.
How to Choose the Right Land Bridging Loan
Selecting the right type of bridging loan involves carefully assessing your needs and circumstances.
Consider factors such as the loan amount required, your preferred loan term, and your exit strategy. It’s important to compare rates and terms from different lenders, as these can vary significantly.
Working with a specialist broker is essential.
The bridging loan marketplace is not always consumer friendly, lenders prefer dealing with brokers. And with over 200 lenders, it’ll take you a while to compare them!
An experienced broker will provide access to a wide range of lenders, including those not available directly to borrowers, and help you find the most suitable and cost-effective solution for your project.
Land bridging loans offer a powerful option for property investors and developers looking to move quickly on land acquisition opportunities.
Their speed, flexibility, and suitability for a wide range of scenarios make them an attractive option in the fast-paced property market.
Before proceeding we recommend seeking professional advice to ensure it’s the right choice for your specific circumstances.
Our team of experts is here to guide you through the process, helping you make an informed decision and secure the best possible terms for your land acquisition project.
Just give us a call on 0330 030 5050 to get started.
When Should Ground-Up Finance Be Used?
There will be a point when bridging finance is not as flexible as you need it to be, and this can occur when your development projects grow in size.
Bridge lenders are really flexible, they want to lend you money, but the LTV is calculated on today’s property value.
They are not geared up to lend against improvements that you will be making.
This is not particularly helpful for property developers who are building to add value.
At this stage you will probably want to investigate property development finance, as these lenders will help to finance the planned build.
Ground Up Development Finance
Ground-up development finance helps investors buy land and build new properties; from the ‘ground up’.
This can include single houses, housing estates or commercial buildings. It’s a higher-risk area of property development, but can lead to bigger profits.
It covers the entire process, from land acquisition to project completion.
This finance type is particularly well-suited for developers undertaking large-scale projects from scratch.
explore Ground Up Development FinanceNeed some help?
If you need a short-term bridging loan then a specialist broker is a good place to start. You will get expert help and advice along with a wide range of lenders to choose from.
To get matched with a specialist broker, please call us on 0330 030 5050.
