Land bridging finance

A land bridging loan is short-term finance secured on a plot of land. It is used to buy land quickly, often at auction, or to hold land while planning permission is sought, and is repaid by a sale, a refinance or development finance. Lenders base the loan on the land's current value and its realistic future use.

Land lending is almost always unregulated, because the land is bought for investment, development or business use rather than as a home. Each lender sets its own criteria on the type of land, its location, access, planning status and the borrower's plans for it.

Planning status has a large effect on a land bridging loan. Land with full or outline planning permission has a value that reflects what can be built, so lenders can lend more against it. Land without planning is valued on its current use, which is often much lower, so the amount a lender will advance is usually smaller.

Planning is granted under the Town and Country Planning Act 1990 in England and Wales. Some lenders accept land with a planning application in progress if there is strong evidence it will be approved, while others only lend once permission is granted. Funding the build on land with planning is covered on the page about bridging finance for property development.

Agricultural bridging and farm bridging finance are secured on farmland, farm buildings or rural estates. They are used to buy neighbouring land, bridge the gap before a farm sale, release capital while a longer-term agricultural mortgage is arranged, or fund the purchase of land with diversification plans. Farm property is valued on its agricultural use.

Lenders look at access, any agricultural tenancies, environmental designations and whether the land includes a farmhouse. If a farmhouse is lived in by the borrower or close family, part of the loan may be regulated, which changes the process.

A surveyor approved by the lender values the land on its current use and, where relevant, its value with planning permission. Lenders usually lend against the current value. Factors include size, location, road access, utilities, ground conditions, flood risk and covenants, all of which can affect both the value and the lender's appetite.

The legal work checks the title, boundaries, rights of way and any restrictions on use. Land with title problems or no clear access is harder to finance. These checks can take longer than on a house, so they are usually started early in the purchase.

The usual exits are selling the land, often with planning permission added, refinancing onto development finance to build, or moving onto a longer-term commercial or agricultural loan. Lenders want evidence that the exit is realistic before agreeing the term, such as a planning consultant's view or an agreement in principle from another lender.

Interest on land bridging is often rolled up or retained because land produces little or no income. Bridging loan brokers can compare lenders that take land as security, as criteria vary more for land than for most other property types.