Rather than purchasing a property, have you ever thought about building your next home? Or perhaps you’ve spotted the potential in a piece of land that no-one else has but don’t have the funds in place to get the deal done? A bridge loan could be the answer.
For many, building their own home or becoming a property developer sounds great until they realise that traditional mortgages aren’t available because those loans are secured by a completed house rather than just a plot of land.
So, how are you going to buy the land? A land bridge loan is the answer, and if you need further finance for the development then a self-build bridging loan or property development finance may be worthy of consideration.
Land bridging loans and self-build loans are two forms of bridging loans that can be secured quickly and simply if you have land or property as security.
As Stephen Clark from Finbri land bridging finance broker says, “A bridge loan is commonly used to purchase land or finance a self-build development. Bridging loans are often required at very short notice. We appreciate that such land opportunities come and go in the blink of an eye so the ability to quickly arrange medium to high-value financing is crucial to our clients’ project success.”
How does a land bridge loan work?
A land bridge loan, also known as a land bridging finance, is a type of loan that is used to finance the acquisition of undeveloped land, so that’s land without any pre-existing structures on it. Land bridging loans can be used to purchase land on which to build a property for residential or commercial purposes. The type of loan you’ll need depends on what type of land you’re purchasing and how you want to use it.
A land bridge loan is frequently confused with a self-build or construction loan, which is a different sort of financing for people who want to build a property. So, how do you tell the difference between the two? You’ll probably need a self-build loan if you’re building a home, or development finance if you’re building a commercial premises or as a commercial entity and where you’re aiming to begin construction on the land immediately.
Land loans are a preferable option for prospective home builders who have a concept in mind but don’t actually want to start building right away. For example, they may wish to simply acquire the land and are waiting for alternative financing such as the sale of another property. A land loan is likely to be a better option in this scenario especially if you’re still in the design ideas and planning phase of the potential build.
Loans for land that hasn’t been developed
The land is deemed undeveloped if there are no utilities installed, such as electricity, gas, or sewage, or where no structures exist. Because financing for undeveloped land is more difficult to come by, creating a precise plan for how you wish to develop the land is essential. This will demonstrate to lenders that you are committed to the project and are not a risk.
If you can put down a cash payment (typically between 30 and 50 percent depending on whether the land has planning), you’ll be able to meet the requirements of many UK lenders. Furthermore, if you require more financing than the equity in the land itself can provide you may want to consider using additional property as security. In instances such as this you potentially have the option of financing the entire purchase of the land without having to invest 50% to 70% of the purchase value.
But what if you don’t have the cash to put down 30-50 percent on the land?
For a land loan, most lenders would take equity in another property or piece of land as collateral. The quantity of finance a lender is willing to offer you is mostly decided by the amount of equity you have and the type of security you’re providing.
Can I get a loan to buy land in the United Kingdom?
Borrowers can use a land bridge loan to buy land in the UK. The land loan, like other short-term bridging loans, is typically for no more than 12 to 24 months and is repaid either by the sale of the land or development at the conclusion of the loan term, or by the borrower refinancing into a longer-term regular mortgage.
Bridging for land is accessible across the United Kingdom, including Scotland and Northern Ireland.
Where can I begin my search for a land loan?
This type of loan can be obtained in one of two ways: directly from a lender or through a bridging loan broker.
As Stephen goes on to say, “Brokers like Finbri aim to understand each lender’s appetite for various land agreements, which varies depending on the borrower, the land value, the location, and the type of property in question. Some lenders would refuse to lend to first-time property developers, and others will refuse to lend on commercial or agricultural properties. It’s a broker’s responsibility to know which lenders will want to fund particular types of land transactions, and it’s this expertise that might be the difference between a land purchase being completed on time or falling through.”
There are several free web directories to use if you’re unsure where to source for your bridging loan or property development finance. The UK’s association of bridging loan brokers and lenders provides contact information for all of the country’s leading bridging specialists free of charge, and so could be a good place to start your search for free!