If you are looking to purchase a piece but do not have funds to complete this purchase of a piece of land, it is worth considering a bridging loan as your funding source. It is a source of short-term funding designed to provide quick access to cash. Land bridging loans are generally available from direct bridging lenders and p2p lending platforms. However, finding the best lender and competitive rates is tricky, especially when you need proper knowledge and information.
This article will explain everything you need to know about bridging loans for land purchase, including the application process and how you can improve your chances of approval.
How Does Land Bridging Loan Work?
With this type of loan, you will get access to funds quickly, sometimes only within two days, but in return, you have to pay higher interest rates compared to traditional property loans or mortgages.
Some lenders ask for hefty deposits, while others may ask you to put up extra security to take out loans like a residential property.
Land bridging loans are interest-only loans, which is why lenders want you to provide proof of your exit strategy. In other words, you must prove how you plan to repay the loan. Most often, the exit strategy consists of the sale of a property or taking out long-term funding once your project has been completed.
How Can You Apply For Bridging Finance?
If you want to apply for a bridging loan to purchase a piece of land, first, you have to choose a lender. Do the research and find the lender that meets all your needs. You can also find the lender with the help of a broker. As brokers have access to the whole market, they can easily match you with a lender offering the best rates and meeting all your requirements.
The next step to securing a land bridging loan is establishing your exit strategy. If you have a strong exit, it can be easier for you to get approval. So, it is essential to plan before you approach any lender. Bridging finance to purchase land is usually large amounts, that are why lenders want to know how you plan to repay the loan amount. It is worth having a backup plan if your exit strategy fails in any case.
Borrowers go for bridging loans for land when they need a large sum of money quickly. If you don’t want any delay in your application process, it is worth getting all the documents ready. You may need to provide full details of the land, valuation reports and planning permission.
Once you complete the application, your lender will review your application and provide you with a quote according to the value of the property.
Eligibility Criteria For Land Bridging Loans
The lenders who offer land purchase bridging finance have their own set of lending criteria. However, the following are some general requirements that you must meet to get quick approval:
- You must have a security property to use as collateral against a loan or an initial deposit. Typically, loan to-value for these types of loans is between 60% to 65%, which means you are expected to put down a 30% initial deposit.
- A strong exit strategy and a backup plan are the essential things that bridging lenders consider before approving your loan application.
- A good credit score is less essential than in standard bank loans, but a good credit score increases your chance of getting quick approval. It will also help you to find a more competitive deal.
- Some lenders require industry experience to make sure that you have the ability to complete development projects and are able to repay the loan amount. If you have experience in a similar project, the lender is likely to offer a lower interest rate.
- When taking out a bridging loan for a land purchase, some lenders ask you to have planning permission in place before approving your loan. Only a few lenders are likely to offer loans before having planning permission. However, these lenders require heavy initial deposits.
Can You Secure A Bridging Loan To Purchase Land?
Yes, a bridging loan is available to purchase land. In the same way, you can secure bridging finance to buy a property. Many bridging loan companies offer loans that assist you in completing the purchase of land.
This type of bridging finance is useful for property developers who need funds to secure an investment, such as purchasing land at auction. You can use it to buy land for both commercial and residential purposes.
Uses Of Land Bridging Loans
There are many reasons why people take out this type of loan. Following are some common reasons:
- To complete the purchase of land faster.
- To get funds needed to use somewhere else.
- To complete a purchase that has been agreed upon subject to planning.
- To get funds for planning applications that allow land to be developed ultimately.
What Is The Cost Of Land Bridging Loan?
The cost of bridging loans depends on interest rates and additional charges. The interest rate depends on several actors, such as the location of the land and planning permission. If the land is at a good location and has planning permission, you will get an interest rate of around 0.9% per month. If the land is not at a prime location and there is no planning permission, the interest will be between 1.25% to 1.5% per month.
Additional charges include arrangement, valuation, broker, and legal fees. It is essential to consider these fees so that you can decide whether you can afford to take out a loan.
Conclusion
Bridging loans are a useful funding source to purchase or refinance land quickly. You must have an exit strategy and planning permission to secure this type of funding. However, the interest rates of such loans are higher than traditional mortgages, so you should take out this loan only if you can afford to repay. Bridging lenders and some p2p lending platforms are offering bridging loan finance for land purchases. We suggest you shop around, research and make price comparisons to find the right lender and competitive rate.
