Bridging loans can be an emergency financial solution to landlords, property developers and even home hunters in need of funds fast or in a flexible manner However, they can also be utilised for purchase of land or development of land, and we receive a lot of enquiries about this.
Learn details about the process of purchasing land using bridging finance or send an enquiry to speak to a whole-of-market broker for bridging finance who will help you connect with the top lenders.
How does land bridging finance work?
A bridging loan used to purchase land is similar to applying bridging finance to purchase a commercial or residential property. These loans are quick to negotiate in comparison to other types of borrowing, they are flexible, and typically have higher rates of interest than mortgages.
The land you purchase with bridging finance may be used for residential or commercial purposes or even mixed-use, provided that the status of planning permission is in keeping within the terms of the lender’s loan agreement.
Sarah from bridging finance broker Finbri says “Obtaining finance for land purchasing is one of the fastest bridging finance loans we’re able to arrange as they’re often very straightforward. We typically can arrange land bridging finance within 2 weeks but encourage anyone to contact us for a free no obligation conversation to find out how we can help.”
Are loans for land bridges difficult to get?
They could be as several UK bridge lenders do not offer financing for land purchases because they believe it to be higher risk than those with property in situ. Some lenders who offer loans for land purchases may demand that the borrower provide additional security to protect the loan, or also offer interest rates that are high to protect themselves.
In light of these aspects it is essential to seek market-wide advice when looking for a loan to bridge the gap in order to avoid you’re in danger of unfavourable terms. The experts we work with can access the whole market and will help you find lenders with the best rates on loans for land bridges suitable for someone in your circumstance.
Ask your broker questions
Brokers should recognise that everyone’s needs are different, and that’s why the best ones collaborate in partnership with specialist lenders who specialise in land and development finance.
The land can be sold at a profit to settle a loan
Let’s suppose you have the funds you need to construct a house or build on a piece of land, but you don’t have enough money to purchase the land. A bridge loan could provide an additional amount of cash fast, which allows you to move forward in your plans before the opportunity is seized by someone else.
After you have received planning permission, developed the land, or constructed your property, your exit strategy may well be the sale of the property or mortgaging it via traditional methods.
Making a land-bridging loan using a self-build mortgage
Self-build mortgages are designed for people who have the required abilities and desire to build their own house. They may do most of the construction work themselves, and bring electricians, plumbers and other tradesmen if needed while others employ contractors to handle the whole project for them. The funds for a self-build mortgage are typically distributed in stages, not in one lump sum.
Specialist lenders are usually required for self-build loans since most mainstream lenders consider them to be risky. The lenders that do offer these types of loans typically require a hefty deposit of at minimum 25%, but in some cases it could even be 50%. The rates also tend to be quite high.
However, there are always financial gains to be made since many homeowners find that their home is worth more than what it would cost to construct. The saving of Stamp Duty is one of these potential gains.
A bridging loan could be used as a prelude to self-build mortgages, which provide the funds needed in order to protect the property you plan to build your home on. The self-build mortgage could be used to repay the loan amount and pay for your construction project.
Utilising a developer loan to settle a bridge loan for land works similar to self-build mortgages however, you’d choose this method if the property you’re planning to develop on the land is commercial or mixed-use rather than one you’re anticipating to reside in.
Developer finance is basically a secured loan that includes stages of payments. It is typically used by borrowers who do not have the total amount required to finish the work on their property.
The loan provider will distribute funds to complete the work in stages, then reevaluate the loan as each stage in the construction process is completed and further lending will be based on the increase in value of the development.
The process of remortgaging land to pay for an secured bridge loan
This is only an option if you have enough money to build or remodel a home on land you’ve taken advantage of a bridging loan to get.
After you’ve secured your plot via bridging, and obtained relevant planning permission, you may utilise your own funds to construct a home on the property and then obtain an remortgage on the basis of the value after development as well as your exit plan.
Can I get a mortgage without planning permission?
The answer is yes, but with some caveats.
A small portion of lenders do cater to those who require the money to buy the land that has not already got planning approval.
However, these niche providers tend to put strict limits on LTV (some may be as just 50 percent) and might insist on secondary security being offered by the borrower.
In this situation it’s crucial to look for brokers who provide access to whole of market in order to get the best offer.
Maximum LTV on loans for land bridging
Most lenders will provide lower loan to value (LTV) ratios for bridge loans for land when compared to property. On average, you should expect to receive between 60 and 70 percent if you have been granted planning permission. The amount could go as low as 50 percent in the absence of planning permission.
This means that you’ll need the deposit to be greater than 30% in order to get a land bridging deal done and perhaps more than 50% where planning permission has been denied.