Land Bridging Loan

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Land Bridging Loan

Land Bridging Loan

Scott West talks to us about bridging loans for land purchases.

Can you get a bridging loan for land? How does it work?  

Yes, you could, although a lot of people think you can’t. The difference is the lender values and lender choice. A lot fewer lenders will lend to you on land, and Loan to Values are quite a bit lower compared with property. 

With land there are two categories: land with planning and land without planning. Land with planning already has permission to develop something on it, and we could typically get 60% or even 65% Loan to Value on those. 

If a land has no planning, it’s going to be capped at 50% Loan to Value with every lender I can think of – but we still could borrow against it.

How do I know if I can get a land bridging loan?

Speak to us. It is virtually the same process and underwriting mindset as with any form of bridging, but obviously the lender choice changes. 

We do need to be mindful of the long-term plan. If the land has planning already, clearly it’s going to become a development at some point. If it’s land without planning, it’s most likely to obtain planning. Once the planning is granted, then we will switch to a development loan. But understanding what the plans are for that land is vital.

As long as you’ve got a credit footprint in the UK and a plan, you’re probably eligible for it.

Why use bridging finance for land purchases? 

If you’re using a bridging loan to buy land with no permission, you’re probably speculating on obtaining planning permission to increase its value. That then means one of two things: either you intend to sell that land and make a profit, or you will obtain planning permission and then switch to a development loan to develop that property yourself. 

If the land already has planning, you’re probably buying it with a bridging loan to secure it quickly. In that case, we would use a lender that has both a development and a bridging arm, so we could move the bridge into development at a later stage for you. 

But speed is most likely to be the key reason people use a bridge.

How much can you borrow for a bridging loan to buy land?

On land without planning you could get 50% Loan to Value. Land with planning will get 60% and possibly 65%. In terms of monetary value, there isn’t really an upper limit. 

I have seen people buy land with planning for £30 million with bridging loans at 60% Loan to Value. You could do very large loans if you have a big enough plot of land. There’s no real cap on the borrowing – just the Loan to Value.

What other costs are involved with a land bridging loan?

As you’d expect, there will be a valuation fee, depending on the size of the land. 

If it does not have planning yet, the valuation fee will probably cost you a couple of thousand pounds. There will be very little legal work required, but again, it’s a good idea to budget for around £1000 for yourself plus £1000 for the lender. 

In terms of lender fees, the interest is rolled up and they will probably charge around a 2% arrangement fee on the loan balance. 

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How difficult is it to get a bridging loan for land? How do I get one? 

That’s exactly where we come in. They are very easy to get if you know where to go, and obviously, we’ll help you with that. We know which lenders to approach depending on where the land is, your plans for it and the value. 

But it’s straightforward. We explain the deal to you, we’ll gather all the information we need, package it for the lender, and ensure that we get a smooth process through it.

How long does this take? How quickly can I complete?

Similar to standard bridging routes, we could do these as quickly as two weeks. Typically I’d ask for a minimum of four weeks, which is easily achievable. If you need it faster, we could achieve that, but if timescales are really urgent then some lenders will charge more. 

What exit strategy should I use?

This is unique to the client’s circumstances and objectives. If you are solely going to attain planning on the land and sell, sale of the property is your exit strategy. 

If you’re planning to develop that land, we’ll help you with that. You might develop properties and sell them, or you might want to retain a couple, or retain the entire lot. Depending what your scenario is, we’ll help you structure the development loan and exit. 

So it really does depend on your long-term goals, but we could facilitate any combination of financing for your needs.

What else do we need to know about land bridging loans?

Just be mindful that if you are buying land and speculating on obtaining planning, you need to understand upfront the costs involved. It can be expensive. 

Make sure you’ve engaged an architect and some builders upfront, and have some conversations with your local planning office as well. Get a good understanding of the likelihood of getting the planning you want. 

If you already have land with planning, or are looking to buy land with planning, again you need to really understand the build costs, the time to build and your long term objectives. 

I see a lot of clients decide halfway through a build that they want to live in it, or sell it. That could change the structure of the loans. Being well informed and well researched before you start will make a big difference to the process.