Can You Get a Bridging Loan to Buy Land?

In the world of property development, the need for quick financing can often arise. One question that pops up frequently is, "Can you get a bridging loan to buy land?" 

In this insight, we'll delve into all you need to know about bridging loans for land purchases, including their benefits, application process, exit strategies, and more.

Key Takeaways

• Bridging loans can be used to buy land, providing short-term financing while waiting for long-term funding or property sale proceeds.
• Lenders assess land value, repayment ability, credit history, and assets. Bridging loans have higher interest rates and fees.
• Research lenders, compare terms, consult advisers, and evaluate if a bridging loan suits your circumstances before applying.
• Land bridging loans expedite land acquisition, with closure in 14 days or access to funds in 7 days for valuation-required equity release.

Can You Get a Bridging Loan to Buy Land?

Yes, it is possible to get a bridging loan to buy land. Bridging loans are short-term financing options that can provide you with the necessary funds to purchase a property or land while you wait for another source of finance, such as the sale of an existing property or a long-term mortgage.

When considering a bridging loan for land purchase, lenders typically assess the value of the land and your ability to repay the loan. They may also consider factors such as your credit history and any existing assets you own. It's important to note that bridging loans often have higher interest rates and fees compared to traditional mortgages, and they are designed to be repaid quickly.

Before applying for a bridging loan, it's advisable to research different lenders and compare their terms and conditions. Consulting with a financial advisor or mortgage broker can also help you understand the options available and determine if a bridging loan is the right choice for your specific circumstances.

Why Might You Need a Bridging Loan to Buy Land?

There are several reasons why you might need a bridging loan to buy land, especially when you are not yet eligible for other types of funding:

Changing Land Category

 If the land you are purchasing needs to undergo a change in its category, such as from Amenity Land to residential or commercial, you may need to apply for the necessary permissions. This process can take time, and traditional lenders may not provide financing until the change is approved. A bridging loan can bridge this gap and provide the funds needed for the purchase while you work on obtaining the required approvals.

Waiting for Planning Permission

Similar to changing land category, if the land requires planning permission for development, you may need to wait for the approval before becoming eligible for other types of funding, such as development loans. In the meantime, a bridging loan can provide the necessary funds to secure the land and cover associated costs, allowing you to proceed with the purchase.

Time-Sensitive Opportunities

Sometimes, an attractive land opportunity arises that requires quick action. If you don't have readily available funds or cannot access traditional financing fast enough, a bridging loan can provide the immediate capital needed to seize the opportunity. This allows you to secure the land quickly and explore long-term financing options at a later stage.

Existing Property Sale Delays

If you are relying on the sale of an existing property to finance the purchase of new land, delays in the sale process can hinder your ability to proceed with the purchase. A bridging loan can fill the financial gap by providing temporary funding until your existing property is sold and you can access the necessary funds for the land purchase.

A bridging loan can be a valuable solution when you need to proceed with a land purchase despite not being eligible for other types of funding due to reasons such as pending approvals, category changes, time sensitivity, or delays in property sales. It offers a short-term financing option to secure the land and allows you to pursue long-term financing or property development in the future.

What Are Land Bridging Loans?

Land bridging loans, often simply referred to as bridging loans, are a type of short-term finance used to acquire land quickly. This type of finance is versatile and can be used for multiple purposes, such as securing funds while awaiting planning permission or simply to release funds swiftly. The primary objective is to bridge the gap between the purchase of new land and the arrangement of more long-term financing.

What sets bridging loans apart is their ability to expedite the process of land acquisition. For instance, if you're seeking a loan for land acquisition and the legal work hasn't begun, a 14-day closure is entirely feasible. For those looking to release equity from land where a valuation is required, funds could be accessible within just seven days of the full lender application.

Key Applications of Land Bridging Loans

Land bridging loans can be applied in various scenarios, such as:

• Rapidly completing land purchases.
• Raising requisite capital for other uses.
• Funding a planning application to facilitate eventual land development.
• Finalising a prospective purchase contingent on planning.

Key Features of Land Bridging Loans

We looked at a variety of lenders and found that Land bridging loans are available with a host of minimum key features, including:

• Max LTV: Up to 65%
• Interest Rate: From 0.75% per month
• Charge Types: 1st, 2nd & 3rd considered
• Term: 1-36 months (maximum 12 months for regulated loans)
• Interest Type: Added to the loan, deducted or serviced
• Completion Timescale: 7 days - 3 weeks

Criteria for Land Bridging Loans

The eligibility criteria for land bridging loans are quite inclusive:

• Land with or without planning permission is acceptable.
• Available to individuals, partnerships, LLPs, Ltd companies, offshore companies, foreign nationals, and pension funds.
• Minimum applicant age is 18 years, with no maximum age cap.
• Available across England, Scotland, Wales, and Northern Ireland.
• Adverse credit accepted (assessed on a case by case basis).

Land Bridging Loan Set-Up Costs

There are several set-up costs associated with land bridging loans:

Lender Arrangement Fee

This fee is charged upon loan completion and is usually 2% of the loan amount. For sizable loans, this may be discounted to 1.5% or even 1% for strong applications.

Broker Fees

Most brokers charge a fee for their service of 1-1.5% of the loan amount.

Valuation Fee

This fee is payable to a chartered surveyor of the lender’s choice for them to visit and value the land. This fee is typically payable early in the application process.

Legal Fees

You'll be responsible for both your and the lender’s legal costs to set up the loan. These fees are usually paid towards the end of the application process.

The interest rates for land bridging loans can vary. For instance, for land with relevant planning permission and a desirable location, you might expect to pay a rate of around 0.95% per month. Conversely, for land with no planning and a less desirable location, a rate of 1.25%-1.5% per month could be more realistic.

Don't forget to consider the costs that are associated with buying the land, such as the land cost and stamp duty. For more information on stamp duty when buying land, consider reading: Do you pay stamp duty on land?

Applying for a Bridging Loan to Buy Land

Step One: Engaging a Broker

Securing a bridging loan for land purchase can be an expensive financial decision, which is why the first step should always be to consult a specialist broker. They can evaluate your circumstances and advise whether this type of loan is right for you. If it is, your broker can suggest potential lenders, negotiate deals, and secure the most competitive rates. It's essential to remember that these loans are available only through specific providers not usually accessible to the public, requiring a referral from a recognised broker.

Step Two: Defining Your Exit Strategy

Having a feasible exit strategy is crucial to getting your loan approved. Ensure you have one clearly outlined before approaching lenders. As these loans can be substantial, often in the millions, lenders will want to know exactly how you plan to repay the money. It's even worth considering a backup plan in case your primary exit strategy fails.

Step Three: Organising Your Paperwork

Due to the nature of these loans, where borrowers typically need large sums of money promptly, having your paperwork organised in advance is advisable to avoid slowing down the process. Your broker can guide you on the necessary paperwork, which usually includes full details of the land and its current use, information on planning permission or applications, and any valuation reports.

Exit Strategies for Land Bridging Loans

A solid exit strategy and repayment plan will enhance your borrowing appeal and increase your chances of loan application approval. Here are the most common exit strategies:

Sell the Land Post-Development

You could develop and build on the purchased land, subsequently selling it for a substantial profit to repay your loan.

Sell the Land Post-Planning Permission

Another approach could be to sell the land for a profit after obtaining planning permission, using the proceeds to repay your loan.

Opt for a Self-Build Mortgage

A self-build mortgage is designed specifically for people looking to construct their own home. With this mortgage type, the lender releases funds in stages as the building work progresses. The funds from your self-build mortgage could be used to repay your bridging loan and fund your construction work.

Opt for a Development Finance Loan

Similar to self-build mortgages, development finance loans release funds in stages. However, these loans are intended for developing commercial property on the land rather than your own home. The money could be used to repay your bridging loan and finance development.

Remortgage Developed Properties on the Land

If you have capital to build or renovate property or properties on the land, you could remortgage them based on their post-development value and repay your land bridging loan with the funds.

Land Bridging Loan Alternatives

When it comes to purchasing land, there are several alternatives to using a bridging loan:

Land Mortgage

One common option is obtaining a land mortgage. A land mortgage is a long-term loan specifically designed for buying undeveloped land. Unlike a bridging loan, which is a short-term solution, a land mortgage offers a more extended repayment period, typically ranging from 10 to 30 years.

Bridge to Let Mortgage

If your intention is to buy the land to build properties that you eventually let out, you can consider a bridge to let mortgage as an alternative. A Bridge to Let Mortgage is a special type of loan that allows landlords to purchase a property that is intended to be used as a rental property. 

Personal savings or funds from investments

If you have accumulated savings or investments earmarked for this purpose, using your own resources can eliminate the need for borrowing and the associated interest payments.

Remortgage to Release Equity

Additionally, you may explore the possibility of a remortgage to release equity. If you already own a property with accumulated equity, you can tap into that equity to obtain the funds needed for purchasing the land. Home equity loans typically have lower interest rates compared to bridging loans, making them a potentially more affordable option.

Development Loans

Furthermore, if you're purchasing land for a specific purpose, such as building a house or starting a business, you might consider specialised loans tailored to those objectives. Development loans or commercial finance loans are examples of such options that can provide the necessary funds for your land purchase and subsequent development.

Next Steps of Using a Bridging Loan to Buy Land

So, Can You Get a Bridging Loan to Buy Land? Yes, you can, although it might not be the best source of financing. Before you proceed with your decision, consider, Is it worth buying land? Seek advice from professionals such as solicitors, who can run searches on the land, as well as financial advisers who can offer financing options for you to consider.