Updated: April 17, 2023
Bridging Finance for Land
Looking for a bridging loan to purchase land? There are plenty of options! Find out exactly what you need to do and how to get this finance in our expert guide.
Author: Pete Mugleston - Mortgage Expert, MD
Updated: April 19, 2022
Bridging loans for land work in much the same way as any other form of bridging finance with the only exception being a smaller pool of lenders. They’re flexible and can be completed in a matter of days, making them ideal if you’re in a contract race or want to take advantage of an investment opportunity straight away.
In this article we’ll explain how a broker can help to identify the right lender and what you can do to get your application approved.
The following topics are covered below...
Can you get bridging finance when buying land?
Yes, it’s possible. With the right support and advice, you can even apply for a loan based on the open market value of the completed development rather than the current value of the land. This can help finance the development without having to apply for further finance.
Bridging finance for land has multiple uses and is used to purchase land that has no inhabitable structures on it. It is popular with developers who want to buy land to build on with the intention of selling the new properties at a profit.
Bridging loans are also a common choice for those looking to buy land in order to apply for planning permission or a change of use before selling to developers who are more risk averse.
Often, people who have bought land at auction rely on a bridging loan to complete their purchase within 28 days as it offers the flexibility and speed of approval required.
Calculate your repayments
Our bridging loan calculator will give you an approximate idea of how much your monthly repayments could be. Simply enter the details for the loan amount, property value and term length. You can also input different interest rates to see how your payments could change depending upon the rate you can get from different lenders.
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.
Get Started with a Broker
Maximise your chance of approval with specialist advice from a mortgage expert.
Which lenders can help?
This is a niche product offered by specialist lenders, many of whom do not have a high street presence. As rates are higher for bridging finance, it pays to scout the entire market for the lender that best suits your circumstances.
Each lender has their own risk profile when it comes to the types of land purchases they will provide borrowing for. This is based on things such as:
- The value of the land
- Whether it is in a desirable area
- Whether planning permission has been granted
- Alternatives uses of the land in the event that the proposed exit plan fails
Most providers in this industry only accept applications via brokers for this reason.
How a broker can help
Due to the rapid nature of bridging loans, which typically complete in maximum 14 days, being able to tap into an experienced broker’s knowledge and understanding of which lenders will be able to assist is crucial.
Going it alone is likely to end in rejection or higher rates than you might otherwise have secured as you simply won’t have time to examine all the options open to you. The brokers we work with will do that legwork for you and be able to quickly identify the right lender, acting as an advocate on your behalf.
If you get in touch we will arrange for a bridging loan specialist to contact you straight away.
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If you’re looking to use a bridging loan to buy a plot of land, below are the key factors a lender will consider when assessing your application.
Exit strategy requirements
Your exit strategy is the way in which you intend to settle the loan. This is necessary as bridging loans are considered short term finance. The most common exit strategies are:
- Selling the land after developing on it
- Selling the land at a profit (often after having obtained planning permission)
- A self-build mortgage
- Developer finance
- A standard mortgage (post development)
All these exit strategies come with several variables which create additional risk to the lender. For example, you may intend to develop and sell but find a downturn in the market makes this difficult.
It makes sense, therefore, to have a back up plan to discuss with lenders when they critically assess your original exit strategy.
If you plan to take out a self-build mortgage, you will need to look into the eligibility requirements so you can satisfy your bridging loan provider that this is a realistic option. In many cases, it is a bridging loan that enables you to buy the land you intend to build on.
Development finance is similar to a self-build mortgage but is used if your intended building project is commercial rather than residential. Again, you’re advised to find out how development finance works to help strengthen your bridging loan application.
You will have a wider choice of lenders if planning permission has already been granted for the land you want to buy. This is due to the risk that it may be refused or that it could be a lengthy process which will delay settlement. With a strong application and with planning permission already granted you can expect to be offered a loan at around 40% LTV with a monthly interest rate of between 0.4% – 0.55%.
Where planning permission hasn’t yet been granted, you can still get finance but fewer providers will consider your application.
Those who do operate in this niche typically expect a higher deposit with some insisting on a maximum LTV of 50%. Your deposit doesn’t have to be cash so you can put up other assets as security against the loan if necessary. Using an in-demand asset such as a residential property can help you secure a favourable interest rate.
Other assets such as investment portfolios, classic cars and fine art are also considered as collateral by some lenders.
Other things to consider
Your application will be assessed on:
- Your current financial circumstances
- Exit strategy
- Investment and development experience of all stakeholders
- Credit history
- How the deposit is funded
Bridging loans are assessed on a case-by-case basis. Providers do not use traditional credit scoring systems alone to assess the viability of the loan and are open to negotiation. The key to securing a bridging loan to buy land is knowing the right lender to approach and matching your application to their risk profile.
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Get matched with a broker who specialises in bridging loans
We work with brokers who have experience of securing bridging loans for clients who are specifically looking to buy land.
If you’re considering bridging finance, time is of the essence. Our broker matching service will assess your situation and place you with a broker who has a track record of helping people just like you.
After a telephone conversation, your nominated broker will then use their knowledge, experience and network to search the whole of the market and secure you the best deal possible.
Call today on 0808 189 0463 or enquire online to arrange a no-obligation chat.
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Mortgage Expert, MD
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!