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Land Bridging Loans

The key information you need to know about using bridging finance to buy land.

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: December 7, 2021

Bridging loans can offer a lifeline to property developers, landlords and even house hunters who need funds quickly or on a flexible basis, but they can also be used for land purchases and land development, and we get many enquiries about this.

Read on to find out more about purchasing land using bridging finance or make an enquiry to speak to a whole-of-market bridging finance broker who can connect you with the best lenders.

How does bridging finance on land work?

Using a bridging loan to purchase land is much the same as using bridging finance to secure a residential or commercial property. These deals are swift to arrange compared to other forms of borrowing, are flexible and usually come with higher interest rates than mortgages.

Land you have bought via bridging finance can be used for commercial or residential purposes, if planning permission is in place, and the bridging provider’s lending decision will likely hinge on the strength of the exit strategy and the viability of the investment.

Are land bridge loans difficult to obtain?

They can be – as many UK bridging lenders refuse to offer finance for land purchases as they consider it too risky. Some of the providers which do lend for land transactions may insist that the borrower puts up extra security to safeguard the loan, and offer high-interest rates.

With these factors in mind, it’s vital to seek whole-of-market advice if you’re looking for a land bridge loan, because without it, you’re running the risk of ending up on unfavourable rates. The advisors we work with have access to the entire market and can connect you with the lenders offering the best rates on land bridge loans for somebody in your circumstances.

Get in touch to speak with one of them over the phone today.

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Exit strategies for land bridge loans

In the context of bridging loans, exit strategy refers to how you plan to settle the loan at the end of the term, and where land transactions are concerned, the following are common…

  • Selling the land post-development
  • A self-build mortgage
  • Developer finance
  • A standard remortgage

Selling the land at a profit to settle up

Let’s say you have your own funds to build a property or develop a plot of land, but don’t have quite enough capital to buy the land itself. A bridge loan can provide extra cash quickly, allowing you to proceed with your plans before a rival bidder can secure the plot.

Once you have obtained planning permission, built on the land or developed it, you could potentially sell it at a significant profit and use some of the money to settle the loan.

Settling a land bridging loan with a self-build mortgage

Self-build mortgages are geared towards borrowers with the necessary skills and ambition to build their own home. Some shoulder most of the work themselves, bringing in plumbers, electricians and other tradesmen where necessary, while others hire contractors to manage the process for them. The funds are handed out in stages, rather than as a lump sum.

Specialist lenders are usually required for a self-build mortgage as most mainstream providers consider them too high risk. The lenders which do offer these products tend to demand a deposit of at least 25% – at some it can be as much as 50% – and the rates are usually high.

That said, there are often financial gains to be made as many borrowers find that their finished property is worth much more than what it cost to construct.

A bridging loan can serve as a precursor to a self-build mortgage, providing the capital required to secure the land you’re planning to build on. The self-build mortgage would then be used to pay off the loan amount and fund the construction work.

Development finance

Using developer finance to settle a land bridge loan works similarly to a self-build mortgage, but you would choose this option if the property you’re looking to develop on the plot is commercial, rather than one you’re planning to live in.

Developer finance is essentially a bridging loan with stage payments, commonly used by borrowers when they don’t have the full amount needed to complete works on a property.

The lender will release the funds for the works in stages, reassessing the deal as each phase of the project is completed, and basing their terms on the increased value of the property,

If you think development finance is a better fit for your needs, get in touch and we’ll set you up with a free consultation with a development finance broker.

Remortgaging a plot of land to settle a bridge loan

This will only be an option if you already have funds to build or renovate a property on a plot of land you’ve used a bridging loan to obtain.

Once you’ve secured the plot through bridging and ensured that planning permission is in place, you could use your own capital to build on the site and then take out a remortgage based on its post-development value, and this can serve as your exit strategy.

Can I get a land bridge loan without planning permission?

The answer to this question is a yes, with a few caveats.

Your choice of lenders will already be somewhat slim if you’re seeking a bridging loan for land purchase purposes, and they will be even thinner on the ground if the plot you’re hoping to acquire doesn’t have planning permission in place.

Some bridging providers will see this as a potential stumbling block, due to the risk of planning permission being denied or the process of securing it being drawn out and delaying the deal.

That said, a minority of bridging lenders will cater for borrowers who need a loan to acquire land which has no planning permission.

These niche providers, however, tend to place strict caps on LTV (some as low as 50%) and may insist that secondary security is put up.

In these circumstances, it’s important to seek whole-of-market access to find the most favourable deal, so make an enquiry and the advisors we work with will connect you to the lender offering the best rates on loans for land purchases.

Maximum LTV on land bridging loans

Lenders typically offer lower loan to value (LTV) ratios on land bridge loans compared to property. On average, you can expect to be offered between 60% and 65% if planning permission has been granted. This can drop to as low as 50% without planning permission.

This means you will need a deposit of more than 35% for land bridging deal, with interest factored in, and perhaps over 50% if planning permission has not been obtained.

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Are rates higher for land bridging loans than property?

Yes, they’re typically higher, but it may possible to find favourable rates for land bridging loans with whole-of-market access. Get in touch and the expert advisors we work with will connect you to the lenders offering the best rates on land bridge loans to suit your needs and circumstances.

Land bridge loan eligibility

All bridge loan applications are assessed on a case-by-case basis, but where land deals are concerned, there are factors lenders will take into account when deciding which rates to offer. Borrowers with the following tend to end up with the most favourable deals…

  • Planning permission:
    We’ve already discussed how it is possible to obtain a land bridge loan without planning permission, but that will likely mean capped LTV and high rates due to the increased risk. If planning permission is already in place, there’s a better chance of the lender viewing you as a low-risk applicant.
  • Exit strategy:
    This is vitally important for any bridging loan and the lender will want to see evidence that your exit strategy is realistic. When determining the level of risk, the lender will want assurances that the land/property will sell or is mortgageable for a certain amount (assuming one of those is the exit). They may request proof of a deal in principle and will be thorough when it comes to valuation.
  • Experience in property:
    Not all land bridging lenders will request experience in property/land/development but it will help you convince some that you’re a lower-risk borrower who is capable of achieving whatever plans they have for the loan. Some lenders might insist on experience if it’s a particularly complex project, and may ask to see evidence of previous developments you’ve worked on.
  • Clean credit:
    Once again, clean credit is not a necessity for some bridging lenders as many are willing to overlook adverse if the plans are achievable and the exit strategy is strong. But clean credit will help you convince some lenders that you’re a low-risk borrower. Indeed, it may prevent you from securing credit from some providers if the exit strategy is a remortgage, and underwriters are often mindful of the possibility of further adverse building up during the loan term.

Can I get a land bridging loan if I trade as a limited company?

Yes, and your selection of lenders should be wide as long as you’re a Limited Company director with 25% shareholding. Limited Company bridge loan applications are treated similarly to Ltd company buy to let mortgages by most lenders and rates are usually no different than the ones offered to borrowers who aren’t set up this way.

Your Ltd company doesn’t strictly need to be a special purpose vehicle (SPV) but it may increase the number of lenders you’re able to approach if it is.

Speak to a land bridging loans expert

If you have questions about land bridging finance and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances.  – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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