What is a Land Bridging Loan?

A land bridging loan, often referred to as bridging finance, is a form of short-term financial assistance employed for the swift acquisition or re-financing of land. There are a number of uses for this type of financial product when dealing with land, including its use during the process of securing planning permission or simply for the rapid release of funds.

Acquiring a plot of land with the intent of subsequently seeking planning permission is an ideal scenario for obtaining a bridging loan. Once planning permission has been granted, you can then transition to development finance to facilitate the construction process.

Land Bridging Loan Uses

There are several motives for individuals opting for a bridging loan as a method of borrowing. Some common reasons include:

  • Facilitating the swift acquisition of a plot of land.
  • Generating capital for deployment in other areas.
  • Financing a planning application, thus enabling future development of the land.
  • Finalising a purchase contingent upon obtaining planning permission.

Bridging Loan Calculator

Try our bridging loan calculator here. Simply fill out the information and click “Continue”.

There are only three steps involved in the process and it should only take around five minutes to complete!

We’ll do the rest and contact you back with a bridging loan quote as soon as possible.

How a Land Bridging Loan Can Help

Quick Land
Purchase

Property Investors and Developers are often under pressure to complete on a land purchase or refinance quickly. When there are such time pressures, using a short-term bridging loan is a quick and easy way to access funds.

Commercial Mortgage
Unavailable

It is very difficult to obtain a commercial mortgage for the purchase of land to be developed. Especially if there is no planning permission or the land doesn’t currently have a usage that is generating income for the landowner. Land bridging finance is an alternative option for purchasing or refinancing when traditional financing options are not available.

Auction
Purchase

Purchasing land at auction and arranging a mortgage within the 28-day time frame for completion can be very difficult. Failure to complete the auction purchase within 28-days will result in the loss of your 10% deposit and other fees or costs that you have incurred. In these circumstances bridging finance can be arranged and agreed ahead of the auction. Giving confidence that finance is available for the purchase.

The Land Bridging Loan Application Process

If you’re keen on obtaining a bridging loan for the purchase of a land plot, here are three steps to follow in order to enhance your chances of approval:

Step One: Consult with a Broker

Securing a bridging loan for land acquisition can be a costly financing choice, so your initial action should always involve seeking advice from a specialist broker, such as Pyxis Capital. We are able to assess your individual circumstances and determine whether this type of loan suits your needs.

If it is deemed suitable, we will recommend which lenders to approach and which ones to steer clear of. Additionally, we can negotiate on your behalf to secure the most competitive interest rate. It’s worth noting that these loans are typically only offered by specific providers that are not accessible to the general public. Therefore, they often require a referral from a recognised broker like us.

If you want to speak to an expert to guide you through the Land Bridging loan application process, get in touch with us today.

Step Two: Establish Your Exit Strategy

Without a viable exit strategy, obtaining approval for your loan will be challenging. Therefore, ensure you have a well-defined exit plan in place before approaching lenders. These loans can be substantial, often reaching into the millions, so lenders will want a clear understanding of how you intend to repay the borrowed funds. It’s also prudent to have a contingency plan in mind in case your primary exit strategy encounters difficulties.

Your chosen exit strategy ranks alongside the loan-to-value ratio as one of the most critical factors in evaluating a land bridging loan. Some common approaches for early repayment of 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 (subject to the land’s intended use).

Step Three: Prepare Your Paperwork

Borrowers usually opt for land bridging loans when they require a substantial amount of funds promptly. To speed up the application process, it’s advisable to gather all the required paperwork beforehand. At Pyxis Capital, we can provide guidance on the necessary documentation, which typically encompasses comprehensive information about the land and its current usage, details regarding planning permissions or applications, and any valuation reports.

The Costs of a Land Bridging Loan

Legal Fees

You will be responsible for covering both your legal expenses and those of the lender for setting up the loan. These fees are usually settled towards the conclusion of the application procedure.

Arrangement Fee

This fee is levied upon the loan’s completion and typically amounts to 2% of the loan value. For substantial loans, this fee may be reduced to 1.5%, or even 1% for exceptionally strong applications.

Valuation Fee

This fee is paid to a chartered surveyor chosen by the lender to assess and value the land. The valuation fee is generally due early in the application process.

Broker Fees

If broker fees are applicable, they will be disclosed as part on the Initial Disclosure Procedure.

What Interest Rate Will I Be Charged?

If the land possesses the necessary planning permission for construction and is situated in a favourable location, you can anticipate an interest rate of approximately 0.65% to 0.95% per month.

However, if the land lacks planning permission and is situated in a less desirable location, a realistic interest rate range would be between 1.00% and 1.75% per month.

bridging finance

Benefits of Bridging Finance

The main benefit of bridging finance is the speed at which funds can be made available to the borrower. A lending decision can be agreed within a couple of hours of us receiving the initial enquiry and funds made available within days. In a competitive and fast-moving property market this allows the borrower to act quickly and secure or refinance a property.

Land Bridging Finance Basic Criteria
Loan To Value Up to 70%
Loans Available 1st & 2nd Charge
Loans Size £50,000 to £10,000,000
Terms 1 Month to 36 Months
Adverse Credit Acceptable
Rates From 0.45%

Where to Obtain Bridging Finance for Land

Lenders

Securing loans against land represents a highly specialised and niche segment within the bridging loan market. Consequently, there are very few lenders willing to accept land as collateral.

The lenders operating in this market are typically independent bridging loan providers rather than prominent banks or well-established financial institutions.

Utilising a Broker

Given the specialised nature of this market, engaging a broker like us can prove to be a significant time-saving measure.

Interest rates can vary substantially among different lenders, making it essential to identify the most suitable lender for your application and potentially achieving significant cost savings.

In addition to locating the right lender, navigating the application process can be intricate, and having someone with experience in this field can simplify matters considerably.

How is my application assessed?

When assessing your application, it’s important to note that while your personal circumstances are a key factor, they don’t provide the complete picture. Lenders will also scrutinise other aspects, including your current financial status, your intentions for the funds acquired and how these plans might impact your financial situation, your ability to manage monthly interest repayments, and, in some cases, your credit history.

Additionally, lenders may take into account your experience in this particular type of transaction. The lender will also assess the provided security, considering several crucial questions:

  • Is the land a suitable form of security?
  • What is the assessed value of the land?
  • How viable and realistic is the proposed exit strategy?
  • Does the land possess the necessary planning permission?
  • Are there alternative potential uses for the land if the planned exit strategy proves unsuccessful?

Eligibility for a Land Bridging Loan

While most lenders typically adhere to the criteria mentioned above, we can extend funding opportunities to a broad spectrum of applicants, provided the loan-to-value ratio aligns with acceptable parameters.

Factors such as prior credit issues, limited experience, or a modest net worth may limit your selection of lenders, but viable options typically remain available.

Lenders providing this category of loan will each establish their specific criteria. Nevertheless, there are common prerequisites that most will anticipate you to satisfy:

Typically, these loans operate with a loan-to-value (LTV) ratio of 60% to 65%, meaning you’ll be required to provide a deposit of at least 35%. However, offering a larger deposit may result in more favourable interest rates. If you haven’t yet obtained planning permission, lenders might perceive you as a higher risk, prompting a deposit requirement of around 50%. Your deposit doesn’t necessarily have to be in cash; you could use other valuable assets as collateral, such as a residential property you own.

Lenders will expect a detailed plan outlining how you intend to repay the loan. Having a robust exit strategy, along with a contingency plan, can enhance your appeal to lenders and potentially lead to more competitive loan offers. It’s essential to remember that these loans are typically interest-only and require the full amount borrowed to be repaid at the end of the term.

While not an absolute rejection factor, maintaining a history of timely loan repayments can significantly improve your chances of loan approval and open doors to more competitive deals.

Although not all lenders insist on prior property or land development experience, possessing such expertise can lower perceived risk and potentially result in more favourable interest rates, particularly if you’ve undertaken similar projects previously.

Most lenders will require proof of planning permission before approving your loan application. A select few might consider an application before planning permission is granted, but this typically entails a substantial deposit of approximately 50% and may necessitate additional collateral.

Why Use Pyxis Capital?

The Team at Pyxis Capital have extensive knowledge of bridging finance and take time to understand a client’s needs and requirements.

You will have a single point of contact from start to finish and will also be provided with direct contact details for one of our Company Directors.

Most importantly you won’t be left with the finding an Exit Strategy from your bridging finance facility. As this is something that will be researched on day one and if possible, agreed in principle with a long-term lender.

auction business farming land refinancing residential

Land Bridging Loans – FAQs

If the loan is for land acquisition and no legal work has started, a 14-day timeline is realistic. For equity release with a valuation, funds could be available within seven days of a complete lender application.

Common exit strategies include selling the land after obtaining planning permission, refinancing to self-build or commercial properties, and considering alternative land use.

Yes, Pyxis Capital offers help with bridging loan services to small businesses, including companies that aim to purchase land for development.

The interest rate of a bridging loan depends on the land’s planning permission status and location. Land with planning permission and a favorable location could lead to lower rates, while land without planning might have slightly higher rates.

Lenders will evaluate your current financial status, intended use of funds, ability to manage repayments, credit history, and experience in similar transactions.

Land is less liquid than commercial and residential property, which can lead to uncertain sale prices. The higher interest rates reflect the potentially higher risk associated with land transactions, especially those without planning permission.

Yes, we do offer financing options whether planning permission is secured or not. While the process may vary slightly, obtaining a loan is typically feasible. An essential requirement is having a viable exit strategy in place, with lenders expecting a realistic plan for asset disposal in case of default. Therefore, land without planning permission should possess some form of desirability to be considered suitable security.

Land is considered a less liquid asset than property, leading to less predictable sale prices in the event of a rapid sale. While the interest rates may be slightly elevated, they are heavily dependent on the quality and attractiveness of the land site. The limited pool of potential buyers for land, especially land lacking planning permission, prompts lenders to adopt a more cautious approach and price their loans to reflect a perceived higher risk.

If the loan pertains to land acquisition, and no legal procedures have commenced, a realistic timeframe is around 14 days. For cases where equity needs to be released from land and a valuation is necessary, funds can typically be expected within seven days of submitting a complete lender application.

Generally, securing a land bridging loan is no more difficult than obtaining funding against property, although each application is assessed on its individual merits.

We extend financing options against land to a diverse range of borrowers, including individuals, offshore companies, partnerships, limited companies, LLPs, and other company structures. In some cases, pension funds that are permitted to borrow money can also access this type of loan. Small businesses seeking to purchase land can also utilize bridging loans. It’s worth noting that land without planning permission poses more challenges compared to fully permitted sites due to inherent planning risks.