Land bridging loans explained
What is a land bridging loan?
Bridging loans, also known as bridging finance is a type of short-term finance used to purchase or refinance land, quickly. There are a variety of uses for this type of finance against land, such as bridging whilst planning permission is obtained or purely to release funds quickly.
The purchase of a piece of land, with the intention of applying for planning permission, would be ideal for a bridging loan. Once planning permission is granted, you would then refinance to development finance, to allow you to proceed with the build.
Land bridging loan uses
There are many reasons why people choose to take out this type of borrowing. Some of the more common reasons are as follows:
- To complete the purchase of a piece of land quickly.
- To raise capital needed to use elsewhere.
- To fund a planning application, allowing the land to ultimately be developed.
- Completing a purchase that has been agreed subject to planning.
How quickly can I complete?
If the loan is for land acquisition and none of the legal work has begun, 14 days is realistic. If you are looking to release equity from land and a valuation is needed, you could expect funds within seven days of full lender application.
Key product features
|Max LTV||Up to 65%|
|Interest rate||From 0.75% per month|
|Charge types||1st, 2nd & 3rd considered|
|Term||1-36 months (maximum 12 months for regulated loans)|
|Interest type||Added to the loan, deducted or serviced|
|Completion timescale||7 days – 3 weeks|
- Land with or without planning acceptable
- Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals and pension funds
- Minimum applicant age 18 years – no maximum age
- Available in England, Scotland, Wales and Northern Ireland
- Adverse credit accepted (on a case by case basis)
Costs of a land bridging loan
What interest rate will I pay?
If the land has the relevant planning permission to build on and the location is deemed to be good you could expect to pay a rate of around 0.95% per month.
If the land has no planning and the location is less desirable, 1.25%-1.5% per month is realistic.
Set up costs
Lender arrangement fee – This fee is charged on completion of the loan and is usually 2% of the loan amount. For very large loans, this may be discounted to 1.5%, or even 1% for very strong applications.
Broker fees – Most brokers charge a fee for their service of 1-1.5% of the loan amount. We don’t charge a fee for our service.
Valuation fee – This fee is payable to a chartered surveyor of the lenders choosing in order for them to visit the land and value it. The valuation fee is usually payable early in the application process.
Legal fees – You will be responsible for both yours and the lenders legal costs for setting up the loan. These fees are usually paid towards the end of the application process.
How much can I borrow?
We can fund loans between £25,000, with no maximum loan size.
Loan to value
We can bridge against land at up to 65% loan to value (LTV), and will even lend up to 100% LTV with additional security.
The amount you can borrow will depend on the value of the security offered. If you’re looking to maximise your borrowing, you may choose to let the lender secure against another property, in addition to the land.
If the additional security is in reasonable demand, such as a residential property, you may benefit from a reduction in the interest rate.
Where to get bridging finance for land
Lending against land is a very specialist and niche area of the bridging loan market. As such, there are very few lenders who are happy to accept land as security.
The lenders who are active in the market tend to be independent bridging loan lenders rather than larger banks or well-known lenders.
Using a broker
Due to the specialist nature of this market, using a broker can be a real time saver.
The rates charged with each lender can differ greatly, and as such, finding the best lender for your application can mean big cost savings.
On top of finding the right lender, managing the application process can be tricky and having somebody who has experience of this can make things far more straightforward.
How is my application assessed?
Although your personal circumstances will be checked when looking to make a new application, they aren’t the whole story. Lenders will look at the following info about you:
- What your current financial situation is.
- What you’re planning to do with the funds raised and how this might affect your finances.
- Whether you can keep up the repayments if paying the interest monthly.
- Your credit history may be taken into consideration by some lenders.
- Your experience in this type of transaction.
In addition, the lender will look at the security offered. The key questions here will be:
- Is the land suitable security?
- What is the value of the land?
- What is the exit strategy and is it realistic?
- Does the land have planning permission?
- Is there any alternative use of the land should the proposed exit fail?
Can I get a bridging loan for land?
Will I be eligible for a land bridge loan?
Although you will be subject to the above criteria points with most lenders, we can offer funding to most applicants, as long as the loan to value is acceptable.
Issues such as previous credit problems, lack of experience or a low net worth can reduce your choice of lenders, but there are still usually options.
Is a land bridging loan hard to obtain?
Generally speaking, they aren’t any more difficult than funding against property, although each application is assessed on its merits.
Land without planning is more difficult than sites with full planning permission, due to the inherent planning risk.
Although this is the case, some factors can increase the desirability of land with no planning permission. The biggest selling points are lapsed planning permission, inclusion in the local plan or a strong alternative use.
Who can take out a land bridging loan?
We can offer finance against land to a range of borrowers, including:
- Offshore companies
- Limited companies
- LLP / other company structures
- Pension funds (where the pension fund is allowed to borrow money)
- Bridging loans for small businesses can be used by companies who are buying land
What are acceptable exit strategies?
Your chosen exit strategy is up there with loan to value for the most important factors in assessing a land bridging loan.
There are some common methods of repaying land bridging finance are:
- Sale of the land after planning has been granted.
- Refinance to a self-build mortgage or property development finance.
- Refinance to a commercial mortgage (depending on the use of the land).
Do you offer loans against land without planning permission?
Yes, we can offer finance whether planning permission is in place or not. Although the process may be slightly different, borrowing is still usually achievable.
There needs to be a realistic exit strategy in place and any lender will expect a realistic way of disposing of the asset in the event of default. As such, land without planning should be desirable in some way to ensure that it’s seen as suitable security.
Why are the rates higher than those for loans secured against property?
Land is a less liquid asset than property, which means any sale price is less predictable should a sale be required quickly.
Although the rates are slightly higher, they are highly dependent on the quality and desirability of the site.
As there is a smaller pool of buyers for land, especially land without planning, it leads to a more cautious approach from lenders. As such, lenders price their loans based on a perceived higher risk.
To find out more, read about short-lease bridging loans.