Bridging Finance for Land Explained

If you’re looking to purchase a piece of land quickly, one option is to take out a bridging loan. Land bridging loans are fairly common, but finding the best lender and securing the most competitive rates can be tricky without having the right knowledge and information.

In this guide, we’ve compiled everything you need to know about these types of loans, including how they work, how to improve your chances of getting accepted, and how a broker can help.

Read on for more information, or use the links below to jump to the section relevant to you.

Can you get a bridging loan to buy land?

Yes, you can. In the same way, you can get a bridging loan to buy a property; it’s also possible to take out this type of short-term finance to purchase land.

Land bridging loans are particularly useful for developers who need funds immediately to secure an investment, such as buying land at auction. Bridging loans can be used to buy land for commercial or residential purposes.

How easy is it to secure these loans?

Land bridging loans are considered high-risk and are typically only offered by specialist lenders. Therefore, they can be tricky to obtain. However, you can increase your chances of being approved by meeting the eligibility criteria (see more below) and seeking advice from a broker who specialises in land bridging finance.

How does it work?

With this kind of loan, you get access to funds quickly, sometimes in a matter of days, but in return, you pay a relatively high rate of interest compared to other, more traditional forms of finance.

Most lenders require a hefty deposit, and some may even ask you to put up extra security, such as a residential property, to secure the loan.

Lenders will also want proof of your exit strategy, as these loans are offered on an interest-only basis. In other words, what you plan to do to be able to pay your loan back – usually either sell the land or apply for a more long-term form of finance once your project has been completed.

The application process

If you’re interested in securing a bridging loan to buy a plot of land, here are three steps to take to maximise your chances of getting approved…

Step one: speak to a broker

A bridging loan to buy land is an expensive financing option, so your first course of action should always be to take advice from a specialist broker who can review your circumstances and advise whether this type of loan is right for you.

If it is, your broker will be able to suggest which lenders to approach and which to avoid. They’ll also be able to negotiate a deal on your behalf to secure the most competitive rate. Remember, these loans are only available through specific providers not usually accessible to the general public. As such, they tend to require a referral from a recognised broker.

Get in touch today, and we’ll match you with a broker from our extensive network who specialises in land-bridging loans.

Step two: establish your exit strategy

If you don’t have a feasible exit strategy, you’ll struggle to get your loan approved, so make sure you have one clearly mapped out before you start approaching lenders.

These loans can be quite large, often in the millions, so lenders will want to know exactly how you plan to pay the money back. It’s even worth having a backup plan in mind in case your exit strategy fails. See below for more on exit strategy options.

Step three: get your paperwork in order

Borrowers typically take out these loans because they need a large sum of money fast. If you don’t want to slow the process down, it’s worth getting all the necessary paperwork together before making an application.

Your broker can guide you through the paperwork you’ll need, but it includes full details of the land and its current use, information on planning permission or applications, and any valuation reports.

Exit strategies

A solid exit strategy and repayment plan will make you a more attractive borrower and improve your chances of getting your loan application approved. Here are the most common exit strategies:

Sell the land after development work is complete

After you’ve bought the land, you could develop and build on it, then sell it for a substantial profit. You could then use the funds to pay back your loan.

Sell the land after planning permission is granted

You could obtain planning permission and then, once it’s granted, sell the land for a profit and use the cash to repay your loan.

Take out a self-build mortgage

Designed specifically for people who want to build their own home, with a self-build mortgage, the lender releases funds in stages as the building work progresses rather than as a lump sum.

You could use the funds from your self-build mortgage to repay your bridging loan and to fund your construction work. If you choose this exit strategy, check that you meet the eligibility criteria before making your application.

Take out a development finance loan

These loans are similar to self-build mortgages. The difference is you’ll be developing commercial property on the land rather than your own home. Again, funds are released in stages and you could use the money to repay your bridging loan as well as to pay for development.

Remortgage developed properties on the land

If you have the capital to build or renovate property or properties on the land, you could remortgage them based on their post-development value and repay your land bridging loan with the funds.

Eligibility criteria

The lenders that offer this type of loan will each have their own set of criteria.

However, there are some general requirements most will expect you to meet…

A sizeable deposit or valuable asset to put up as security

The typical loan-to-value (LTV) ratio for these loans is 60% to 65%, so you’ll be expected to put down a deposit of at least 35%. However, if you can put more down, your lender may offer you a more favourable interest rate.

If you have yet to obtain planning permission, lenders will consider you a higher risk, so you should expect to put down a deposit of around 50%. Your deposit doesn’t have to be in cash. You could put up other assets as security, such as a residential property you own.

An exit strategy

As mentioned, your lender will want details of how you intend to repay your loan. Having a workable exit plan in place—and a backup plan—will make you a more attractive borrower and open you up to more competitive deals.

Remember, these are short-term loans offered on an interest-only basis, so you’ll need to repay the full amount borrowed at the end of the term.

A clean credit history

You won’t necessarily have your application rejected if you have marks on your credit report. However, having a good track record of paying back loans will improve your chances of getting your application approved and could open you up to more competitive deals.

Industry experience

Not all lenders will require experience in property and/or land development, but they’ll view you as lower risk – and perhaps offer you more competitive rates – if you’ve carried out similar projects in the past.

Planning permission

Most lenders will require you to have obtained planning permission before approving your loan. A small handful will consider an application before planning permission has been granted. Still, in these cases, they’ll expect you to put down a hefty deposit of around 50% and could even demand you put up additional security.

Which lenders offer these loans?

These loans are only available through specialist lenders. A broker specialising in land bridging loans will have relationships with all of these lenders, can identify the best one for your circumstances, and can help you with your application.

Bridging loan lenders who will consider offering finance for land purchases include…

• MFS
• Shawbrook Bank
• MT Finance
• Oakbridge
• KIS Bridging Loans

Typical rates

If the land is in a good location and you have a solid exit plan, you should expect to pay around 0.9% a month. If you don’t have planning permission and the location is less desirable, you could end up paying 1.25%-1.5%.

Rates for land-bridging loans tend to be higher than for property-bridging loans. The rate you pay will depend on several factors, such as location and whether or not planning permission has been granted.

How much it will cost

You can use our bridging finance calculator below to work out how much you land bridging loan will cost each month and overall.

Alternative finance options

There are several alternatives to a bridging loan if you don’t think it’s right for you.

We’ve listed some of the most common ones below:

Development Finance

This could be a good option if you’re planning a large-scale construction project on the land.

Development finance loans are similar to bridging loans in that they’re a short-term loan offered on an interest-only basis and rates tend to be higher than traditional mortgages. The borrower will also need proof of an exit strategy. The main difference is funds are released in stages rather than as a lump sum.

Commercial mortgage

A commercial mortgage is a long-term loan secured against the land. The minimum term is typically 15 years, and much like a traditional residential mortgage, the land or premises built on it will be held as security for the loan. Rates tend to be much higher on commercial mortgages than residential mortgages because of the perceived additional risk involved.

Remortgage an existing property.

If you have a mortgage on one or several existing properties, you could consider remortgaging to release cash to fund the purchase of the land. This is a high-risk strategy, however, as your existing properties would be at risk if you couldn’t keep up with the repayments.

Connect with a land-bridging loan expert today.

Opting for a bridging loan to buy land is a significant financial commitment, so you should always talk to an experienced broker who specialises in this niche before you make any decisions.

We work with brokers who have a track record of helping borrowers secure land-bridging loans. Give us a call on 0330 818 7026 or make an enquiry and get matched with an expert today for a free initial conversation.

We hand-pick all the advisors in our network and rigorously vet them so you know you’re getting the best possible advice.