Bridging finance can provide a perfect solution for investors to take advantage of fantastic deals available when speed is of the essence. When buying property at auction it is vital that the buyer has quick access to funds in order to seal the deal, as auctions typically expect full payment within 28 days. Bridging finance […]
Bridging finance can provide a perfect solution for investors to take advantage of fantastic deals available when speed is of the essence. When buying property at auction it is vital that the buyer has quick access to funds in order to seal the deal, as auctions typically expect full payment within 28 days .
Bridging finance is basically a loan that “bridges the gap” between selling a property and buying the next one. Although a bridging loan can be used for a variety of purposes, it is typically used mainly for this reason.
What you may not realise is that bridging finance can also be used to buy and redevelop land.
How does it Work?
It works exactly same way as it would if you were purchasing property. The higher rate of interest can still be expected, when compared to other traditional loans, but access to funds is significantly faster than with other forms of funding.
When it comes to buying land with a bridging loan, your exit strategy is of paramount importance, and will be pivotal in the decision of the lender as to whether you are eligible for funding. A credit check, proof of previous experience (property portfolio) and a sizeable deposit will most likely also be required.
Bridging finance can not only be used to buy land but can also be used to develop land that has already been purchased. Quick cash be raised in order to build on land which is then typically repaid once the project is complete, and all units have been sold or mortgaged by the developer.
Will I Need Planning Permission to Get a Bridging Loan?
It isn’t always necessary to have planning permission before attempting to get a bridging loan, but it certainly helps. Lenders will have more confidence in the project going ahead successfully if you have relevant permissions to proceed with the development. The less risk you present, the more lenders you will have access to.
What are the Pro’s and Cons of Buying Land with a Bridging Loan?
Pro’s:
Speed – to access funds through bridging finance is significantly faster than it would be when applying for a traditional loan. Often funds can be released to the borrower within 48 hours.
Size of Loan – bridging loans can go up into the millions if a clear and viable exit strategy is provided to the lender.
Cons:
Expensive – As a rule of thumb, the longer the loan term, the more interest will be paid. This is due to the interest being calculated monthly. Interest rates tend to be higher than traditional loans or long term mortgage products. It is wise to use a bridging loan calculator to get a general idea of the amount you will be expected to pay.
A bridging loan is a secured loan – This means that the borrower is required to provide assets that can be used should for any reason the loan not be repaid. So, any collateral offered is at risk of repossession if you do not pay.
It is a little more difficult to secure bridge funding for the purposes of buying land than it is for buying property, chiefly due to the higher risk. This risk means that the LTV on land is lower than on property and buildings, and even lower on land without planning permission.
How can I Improve My Eligibility?
Due To the high risk, lenders are understandably cautious when it comes to accepting applications for bridging loans for land purchases. In order to increase your chances of being accepted you should ensure you have the following:
A good credit rating – although bridging finance is not totally exclusive to those who have a perfect credit history, it definitely helps if you do, as it gives the lender more confidence that you can handle your financial responsibilities. There are lenders who will consider buyers for land purchases with less than perfect credit history, but it will be harder to secure the funding and there will be fewer lenders that you can approach.
Exit Plan – A strong, viable exit strategy is an absolute must to secure a bridging loan for land. This will map out the way the borrower intends to repay the loan at the end of the term.
Planning Permission – although not necessary for every lender, most lenders will require the relevant permissions.
A comprehensive property portfolio – if you are an experienced developer and can provide a portfolio of successful previous projects, the lender will be more inclined to approve you application.
Can I Use a Self-Build Mortgage to Repay Bridging Finance?
Yes you can! This type of exit strategy is actually a common way to repay a bridging loan. Having a strong repayment plan will give landers the confidence they need to release the funds for development.
The bridging loan will initially be used to buy the land, the developer will then switch to a self-build mortgage which will, in turn, repay the bridging loan, and construction will then be able to commence.
Can I Remortgage or Sell Land I Bought with a Bridging Loan?
Yes! In fact, this is a typical exit strategy for many property developers who will use the profits raised from the sale of the development to repay the loan in full. Alternatively, they will remortgage the properties and use the funds to settle the loan.
In Conclusion
Buying land with bridging finance is a workable option for developers and investors looking to buy land, providing they have a realistic exit plan and the necessary permissions needed. It would be in the best interests of the borrower to consult a broker with past experience in the bridging field in order to access the best deals available. Most brokers will have access to lenders that are not available to the general public.
Visit the website of bridgingfinance.com to apply and learn more about your options.
About the Author:Craig Upton supports UK businesses by increasing sales growth using various marketing solutions online. Creating strategic partnerships and keen focus to detail, Craig equips websites with the right tools to rank in organic search. Craig is also the CEO of iCONQUER, a UK based SEO company and has been working in the digital marketing arena for many years. A trusted SEO consultant and trainer, Craig has worked with British brands such as UK Property Finance, Serimax, djkit and also supported UK doctors, solicitors and property developers, gain more exposure online. Craig has gained a wealth of knowledge using Google and is committed to creating new opportunities and partnerships.
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