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What is a Land Bridging Loan?

Simply, a land bridging loan is an essential tool in the toolkit of developers and investors alike. It is a short-term financing option used to facilitate the purchase of land with the intention of developing or reselling it for a profit. Unlike traditional mortgages or long-term loans, which are typically obtained for already-built properties, bridging loans are designed to “bridge” the gap between the purchase of a property and the securing of more permanent financing or the completion of a sale. These loans are usually secured against the value of the land itself, often offering faster access to funds with less stringent requirements than conventional lending options.

Key Aspects of Land Bridging Loans

Residential and Commercial

Land bridging loans are crucial in both residential and commercial real estate, enabling developers to quickly acquire land in competitive markets. They offer the liquidity needed to start projects like homes, apartment complexes, office buildings, retail spaces or mixed-use developments, bridging loans provide the necessary liquidity to initiate projects without delays. Beyond acquisition, these loans can be used for refinancing, construction costs, or other real estate expenses.

Key Benefits:

  • Speed and flexibility
  • Immediate access to capital
  • Ability to leverage equity in other properties
  • Temporary bridge until permanent financing is secured

Considerations:

  • Higher interest rates
  • Short-term solution
  • Increased risks due to short-term nature and high interest
  • Importance of considering loan-to-value ratio and potential property value fluctuations

By understanding these factors, investors and developers can make informed decisions about using land bridging loans in their projects.

 

Purchase of Land

Using land bridging loans provides investors with immediate access to capital, enabling them to seize opportunities and acquire desirable land parcels without delay. As well as the usual advantages and considerations, investors should carry out due diligence when purchasing land, particularly considering any local authority requirements, environmental assessments and any other potential development constraints, such as overage provisions.

 

Loan Value

The market value of the land is the primary determinant of loan value, assessed through professional appraisals considering factors like location, size, and development potential.

The loan-to-value (LTV) ratio reflects the percentage of the property’s appraised value that lenders will finance. Development Lenders typically offer LTVs up to 50%-60%, with higher ratios possible through alternative lenders if additional requirements are met or additional security is provided. The borrower’s exit strategy, such as selling or refinancing, also affects loan value and terms. External factors like market conditions, economic trends, and interest rates can influence lenders’ risk tolerance and loan terms. For more information on Bridging Loan Exit Strategies, read our page on Land Bridging Loan Exit Strategies and Special Cases

 

Planning Permission

Planning permission refers to the formal approval granted by local authorities for proposed developments, alterations, or land use changes. Key consideration should be given to planning permission in relation to the feasibility and risk they impose on a project.

Here are some crucial ways in which planning permission can affect loan terms and conditions:

  • Feasibility and Timelines: Planning permission impacts project feasibility and timelines. Borrowers should evaluate the likelihood of obtaining it based on local regulations and community factors.
  • Due Diligence: Lenders conduct due diligence on the property and plans, including planning permission status. Borrowers must secure necessary permits and approvals to demonstrate project feasibility and minimise risks.
  • Risk Assessment: Planning permission is a key risk factor for lenders. Uncertain or contentious planning issues can lead to stricter loan terms, lower loan-to-value ratios, or higher interest rates.
  • Exit Strategy: The status of planning permission affects the borrower’s exit strategy. Borrowers must consider how delays or rejections could impact the project’s timeline and ability to repay the loan.
  • Contingency Planning: Borrowers should develop contingency plans for potential planning-related challenges, such as setting aside funds or extending the loan term, and communicate these plans with lenders to align on loan terms.

In summary, planning permission plays a critical role in land bridging loan applications, influencing project feasibility, risk assessment, loan terms, and exit strategies. Clear communication with lenders about planning considerations is essential to secure favourable loan terms and support successful project execution.

How Coreco Commercial Can Support You With Land Bridging Loans

Ready to make your property dreams a reality? Let Coreco Commercial be your trusted partner! With our friendly expert support and access to a wide range of lenders, we’ll guide you every step of the way to secure the perfect land bridging loan for your project.

 

Key Information

Interest Rate

Interest rates significantly affect the cost and feasibility of land bridging loans. Higher rates increase borrowing costs, while lower rates improve project viability and returns.

When comparing interest rates for different types of land bridging loans, several factors come into play. Traditional bank loans typically offer lower interest rates compared to non-bank or private lenders, reflecting the lower perceived risk and regulatory oversight associated with bank financing. However, bank loans may have stricter eligibility criteria and longer approval processes. Non-bank or private lenders often provide land bridging loans at higher interest rates but offer greater flexibility, faster approval times, and more lenient credit requirements.

To secure favourable interest rates, borrowers should maintain a strong credit profile, compare offers from multiple lenders, and work with a specialist broker. Lender reputation, fees, and market competition also influence interest rates, as do factors like loan-to-value ratios and the borrower’s risk profile.

Complete Purchase

Completing a land purchase using a bridging loan involves several steps and requirements that borrowers must complete to ensure a smooth and successful transaction. Initially, borrowers must secure pre-approval for the bridging loan, providing documentation such as land details, planning permissions, and evidence of previous experience and completed projects.

During this process, borrowers should carefully review loan terms and conditions, including interest rates, repayment schedules, and any associated fees or charges. It’s essential to ensure that all required documents and agreements are in place before the scheduled completion date to facilitate timely funding and registering lender’s legal charge.

By staying organised, proactive, and informed throughout the process, borrowers can successfully complete a land purchase using a bridging loan and lay the foundation for their property development project. The best way to do this is by partnering with a trusted and experienced mortgage broker, such as Coreco Commercial.

Special Cases and Exit Strategies

When planning your land bridging loan, it’s essential to consider your exit strategy and understand the unique scenarios that might arise. Whether you’re a foreign national, purchasing through a limited company, or dealing with a short-term loan, these factors can significantly impact your financing approach. For detailed insights on navigating these special cases, click to explore our in-depth page, on exit strategies and special cases.

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