Land bridging loans explained
Land bridging loans, also referred to as bridging finance, are short-term financing options used for the quick purchase or refinancing of land. These loans serve various purposes, such as bridging the gap during the planning permission process or facilitating speedy access to funds.
Utilising Bridging Loans for Land
There are several reasons why individuals opt for land bridging loans. Some common use cases include:
- Quick land acquisition: Bridging loans enable swift completion of land purchases.
- Capital raising: Borrowers can access funds for alternative investment opportunities or financial needs.
- Funding planning applications: These loans can be used to finance the application process, ultimately leading to land development.
- Finalising planned purchases: Bridging loans are suitable for completing purchases subject to planning permission.
Speed of Completion
If the loan is sought for land acquisition and no legal proceedings have begun, a realistic completion time frame is typically 14 days. For equity release from land requiring a valuation, funds can be expected within seven days of submitting a full lender application.
Key Product Features
Bridging loans for land encompass several key features, including:
- Maximum Loan-to-Value (LTV): Up to 65% of the land value.
- Interest Rate: Starting from 0.75% per month.
- Considered Charge Types: First, second, and third charges.
- Loan Term: Ranging from 1 to 36 months (regulated loans have a maximum term of 12 months).
- Interest Type: Added to the loan, deducted, or serviced.
- Completion Timescale: Typically 7 days to 3 weeks.
Loan Eligibility Criteria
Land bridging loans have the following eligibility criteria:
- Acceptance of land with or without planning permission.
- Available to various entities, including individuals, partnerships, LLPs, limited companies, offshore companies, foreign nationals, and pension funds.
- No minimum or maximum applicant age limit.
- Accessible in England, Scotland, Wales, and Northern Ireland.
- Adverse credit considered on a case-by-case basis.
Costs Associated with Land Bridging Loans
Interest rates vary depending on the circumstances surrounding the land. For land with relevant planning permission and in desirable locations, the interest rate can be around 0.95% per month. However, for land without planning permission or in less desirable locations, the interest rate may range from 1.25% to 1.5% per month.
Several costs are associated with land bridging loans, including:
- Lender Arrangement Fee: Charged upon loan completion, typically around 2% of the loan amount, though it may be lower for large loans or strong applications.
- Broker Fees: Some brokers charge 1-1.5% of the loan amount as a fee, while others, like us, do not charge a fee for our services.
- Valuation Fee: Payable to a chartered surveyor selected by the lender to assess the land’s value. This fee is typically due early in the application process.
- Legal Fees: Borrowers are responsible for both their own and the lender’s legal costs during loan setup. These fees are usually paid towards the end of the application process.
Loan Amount and Loan-to-Value
Land bridging loans offer flexibility in terms of loan size and loan-to-value ratio:
- Loan Size: Loans can be provided from £25,000 with no maximum limit.
- Loan-to-Value: Bridging loans can be secured against land up to 65% of its value. In some cases, lenders may consider lending up to 100% LTV with additional security. The loan amount depends on the value of the land, and borrowers may choose to secure the loan against another property in addition to the land, potentially leading to a reduced interest rate if the additional security is in high demand, such as a residential property.
Finding Bridging Finance for Land
Securing bridging finance against land requires engaging with specialised lenders in this niche market. Independent bridging loan lenders, rather than major banks or well-known lenders, tend to be more active in this area.
Using a Broker
Due to the specialised nature of land bridging loans, working with a broker can save considerable time and effort. Different lenders offer varying rates, so finding the most suitable lender for a specific application can result in significant cost savings. Additionally, managing the application process can be complex, and an experienced broker can streamline the process.
When applying for a land bridging loan, lenders consider more than just the borrower’s personal circumstances. They also assess the following information:
- Current financial situation
- Intended use of the funds and its impact on the borrower’s finances
- Ability to make monthly interest payments
- Credit history (in some cases)
- Experience in similar transactions
The lender also evaluates the security being offered. Key considerations include:
- Suitability of the land as security
- Land value
- Realistic exit strategy
- Existence of planning permission
- Alternative uses for the land if the proposed exit strategy fails
Ready to Proceed?
Contact us today to receive impartial advice from our experienced land bridging loan experts. We are here to guide you through the process and help you make informed decisions.
Can I Obtain a Bridging Loan for Land?
Yes although it depends if the land has planning permission or not. With some lenders land without planning is acceptable but the majority will require full planning permission to have been approved.
Eligibility for a Land Bridging Loan
While most lenders have specific criteria for borrowers, we can provide funding to most applicants as long as the loan-to-value ratio meets the acceptable standards. Previous credit issues, limited experience, or a low net worth may limit the choice of lenders, but options are typically available.
Is Obtaining a Land Bridging Loan Difficult?
In general, obtaining a land bridging loan is no more challenging than securing a loan against property. Each application is assessed on its individual merits. Land without planning permission presents additional challenges compared to sites with full planning permission due to the inherent planning risk. However, certain factors can enhance the desirability of land without planning permission, such as lapsed planning permission, inclusion in the local plan, or the potential for alternative use.
Who Can Apply for a Land Bridging Loan?
We offer land finance options to various types of borrowers, including:
- Offshore companies
- Limited companies
- LLPs and other company structures
- Pension funds (where borrowing is permitted)
- Small businesses purchasing land
Acceptable Exit Strategies
The chosen exit strategy is a crucial factor in assessing a land bridging loan. Common methods for repaying land bridging finance include:
- Selling the land after obtaining planning permission
- Refinancing to a self-build mortgage or property development finance
- Refinancing to a commercial mortgage (depending on land use)
Frequently Asked Questions
Q: Do you provide loans against land without planning permission?
A: Yes, we offer financing options regardless of whether planning permission is in place or not. While the process may differ slightly, borrowing is typically still achievable. A realistic exit strategy is essential, and lenders expect a viable plan for disposing of the asset in the event of default. Therefore, land without planning permission should have some desirable aspects to be considered suitable security.
Q: Why are the interest rates higher for land bridging loans compared to loans secured against property?
A: Land is considered a less liquid asset than property, meaning that sale prices may be less predictable when a quick sale is required. While interest rates are slightly higher, they heavily depend on the quality and desirability of the land. Since there is a smaller pool of potential buyers for land, especially land without planning permission, lenders adopt a cautious approach and price their loans based on perceived higher risk.
If you are looking to build on the land then instead of a bridging loan, you may require Ground Up Development Finance.
In conclusion, land bridging loans provide a short-term financing solution for acquiring or refinancing land quickly. They are particularly useful in situations where planning permission is being sought or funds need to be released promptly. By understanding the key features, costs, eligibility criteria, and exit strategies associated with land bridging loans, borrowers can make informed decisions.
Whether you are an individual, a company, or a pension fund, seeking the assistance of a specialised lender or broker can greatly facilitate the application process. If you are considering a land bridging loan, reach out to us today for expert advice and guidance.
Call us on 01244 565095.