A land bridging loan is a short-term finance facility that can be secured on a piece of land.
Bridging loans offer speed and flexibility, this allows borrowers to access large funds quickly in order to seize opportunities or solve problems when fast finance is required.
Land bridging loans are typically used by developers who want to develop and build on a plot of land before selling on for a profit. The loan will then be cleared on completion of the sale, or alternatively many are refinanced to a longer-term development finance facility that can also be used to provide additional funds for the build.
A land bridging loan can be used for a variety of different purposes, the most common uses include:
Land bridging loans allow you to raise capital by using a piece of land as security instead of a property.
This could be land that you own already or land that you’re planning to purchase.
You can typically borrow up to 75% to 80% of the value of the land, however you could raise 100% or more of the value if you can provide additional security. This could be another piece of land or a property. Doing this may also bring the loan to value down, which has the added bonus of potentially attracting lower interest rates.
A bridging loan is a short-term facility with terms typically of up to 12 to 18 months. There are limited options of up to 36 months, so it shouldn’t be used as a long-term financing option.
The bridge will be secured against the land until your exit strategy comes to fruition. This could be the sale of the land, after completion of the development or once planning permission has been obtained, or it could be refinancing with a longer term facility.
The following types of land are suitable security for a land bridging loan:
It is possible to secure a bridging loan on a plot of land without planning permission.
However, the land will need to be in a good location or desirable in another way as the lender will need a realistic possibility of being able to sell the land in the event of default.
When you apply for a land bridging loan, you will need to provide the following information.
Having this ready in advance of your application can speed up the process if you are looking to complete quickly.
The cost of taking out a land bridging loan will depend on a number of factors. These include:
Interest
If the land has planning permission, is desirable, and is in a good location, you could expect to pay an interest rate of around 0.95% per month.
If the land does not have planning permission and it’s not in a desirable location, an interest rate of around 1.25% - 1.5% per month is more likely.
Arrangement fees
Lenders will charge a fee for setting up and arranging the loan. This is usually around 1.5% to 2% of the loan amount, but this can be reduced to as low as 1% for larger applications.
Valuation fees
Unless a valuation has been done recently, a valuation of the land will need to be completed. This fee will need to be paid upfront.
Legal fees
You will be responsible for covering both yours and the lender’s legal costs. These fees can vary as it depends on the lender and how complex the application is. Legal costs will also need to be paid upfront.
Broker fees
Most brokers charge a fee for using their services - we do not charge broker fees
Early repayment charges and exit fees
You will not be charged ERCs or exit fees with any of our plans.
There are several benefits to using a land bridging loan. These include:
As with all secured financial products, your land or property will be at risk if you fail to pay back the bridging loan on time.
Bridging loans are intended for short-term use and shouldn’t be relied upon as a long-term solution. The interest rates reflect this.
Here are some of the most frequently asked questions that we get regarding bridging loans secured on land.
Typically 14 days if it’s for a land purchase, 7 days if it’s for releasing equity from land you already own and in some circumstances just 72 hours.
Your exit strategy is one of the most important eligibility factors when it comes to bridging finance.
Common exit strategies for land bridging loans include:
Your eligibility for a bridging loan is mainly dependent on the type of land and value, the LTV, and your planned exit strategy. Provided that these things are suitable, you should qualify for a land bridging loan.
You do not have to make monthly repayments on a bridging loan so your income is not assessed.
In general, securing a bridging loan on land isn’t much more difficult than a traditional property backed bridging loan and every case is assessed on its own merits. Using land with planning permission will be easier than land without, but lending still very much possible.
Yes, you can take out a bridging loan of a piece of land without planning permission, however the loan to value and interest rate offered may be different to a plot of land with planning.
Without planning permission, the land is more of a risk as it could be seen as less desirable. Therefore, the land needs to be desirable in another way as the lender would need to be able to sell it in the event of loan defaults.
Anyone can take out a land bridging loan as long as the land is suitable security and a secure exit strategy is in place.
We can lend to:
You may be able to borrow 100%, or even more, of the land cost if you have additional security available. This could be another plot or plots of land or a property.
Example:
You want to purchase a plot of land for £200,000 but you do not have any money to put in. However, you own another property outright worth £400,000.
You can this other property in addition to the plot of land, bringing the total value of assets being used as security to £600,000.
Borrowing £200,000 against assets worth £600,000 would give you a loan to value of 33% for the net loan.
Land bridging finance is a very specialist area of the market, so using an experienced broker will save you a huge amount of time and effort. Also, some lenders only deal with brokers which means you will have access to lenders that you wouldn’t be able to approach directly.
An independent broker will be able to search the whole market, ensuring you get the absolute best option to meet your needs and circumstances. A broker will also be there to help you through the application process.
Generally speaking, land bridging loans are more expensive than traditional property-backed bridging loans due to land being less in demand compared to bricks and mortar.
Using an independent broker is the best way of making sure that you’re getting the best land bridging loan deal.
Last updated: 22 November 2023 | © KIS Bridging Loans 2024