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 put together everything you need to know about these types of loan, including how they work, how to improve your chances of getting accepted and how a broker can help.
Read on for more information or jump to the section that’s relevant to you via the links below…
Can you get a bridging loan to buy land?
Yes, you can. In the same way you’re able to 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 straight away to secure an investment such as, for example, 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.
Speak to an expert on bridging loans
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 will require a hefty deposit and some may even ask you to put up extra security to secure the loan like a residential property, for example.
As these loans are offered on an interest-only basis, lenders will also want proof of your exit strategy. 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 taking 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 back up 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 necessary paperwork together before making an application. Your broker will be able to guide you on 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.
Having a solid exit strategy and repayment plan will make you a more attractive borrower and improve your chances of having 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 chose 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 capital to build or renovate property or properties on the land, you could then remortgage them based on their post-development value and pay back your land bridging loan with the funds.
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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’ve yet to obtain planning permission, lenders will consider you higher risk so you should expect to put down a deposit of around 50%. Your deposit doesn’t have to be in the form of cash. You could put up other assets as security, for example, a residential property you own.
An exit strategy
As previously mentioned, your lender will want details of how you intend to pay your loan back. Having a workable exit plan in place – and a back up 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.
Not all lenders will require experience in property and/or land development but they’ll view you as lower risk – and perhaps offer your more competitive rates – if you’ve carried out similar projects in the past.
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 but 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 who specialises in land bridging loans will have relationships with all of these lenders and will be able to identify the best one for your circumstances and help you with your application.
Bridging loan lenders who will consider offering finance for land purchases include…
- Shawbrook Bank
- MT Finance
- KIS Bridging Loans
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 a number of factors such as location and whether or not planning permission has been granted.
How much it will cost
You can use our calculator below to work out how much you land bridging loan will cost each month and overall.
Bridging Loan Calculator
This calculator will tell you how much your bridging loan will cost each month and work out your loan-to-value ratio to give you a better idea of whether your finance agreement is affordable.
Total monthly payment:
Now that you have a clearer idea of how much your loan will cost, you should speak to a bridging finance broker to explore all of your options and boost your chances of getting the best deal possible.
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Alternative finance options
If a land bridging loan isn’t right for you, there are several alternatives:
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.
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 0808 189 2301 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.
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