Bridging Finance for Land Purchase and Development

Why Land Purchases Often Require Bridging Finance

Buying land for commercial development presents a unique financing challenge. Most traditional lenders will not provide a mortgage on bare land or land without planning permission, and even where planning exists, the timeline from purchase to development can make conventional lending impractical.

**Bridging finance** fills this gap. It allows developers and investors to acquire land quickly — often beating competing bidders — and hold it while planning permission is secured, development finance is arranged, or other pre-development work is completed.

Land bridging **enables** developers to control sites that would otherwise go to cash buyers, and to progress through the planning process without the pressure of losing the opportunity.

Types of Land and How Lenders View Them

Not all land is created equal from a lender's perspective. The type of land and its planning status significantly affect the terms available.

Land With Full Planning Permission

This is the most straightforward scenario for bridging lenders. The land has detailed planning consent for a specific development.

• LTV: Up to 65-70% of the land value (with planning)
• Interest rates: 0.60% to 1.0% per month
• Exit strategy: Transition to development finance to fund the build, or sale of the land with planning at a profit
• Lender appetite: Strong — this is the lowest risk land lending

Land With Outline Planning Permission

Outline planning establishes the principle of development but reserved matters (layout, design, access, landscaping) still need approval.

• LTV: Up to 60-65% of the land value
• Interest rates: 0.70% to 1.15% per month
• Exit strategy: Secure reserved matters approval, then transition to development finance or sell
• Lender appetite: Good — most specialist bridging lenders will consider this

Land Without Planning Permission

This is the highest risk category. The land may have development potential, but there is no certainty that planning will be granted.

• LTV: Up to 50-60% of the land value (based on its current use value, not hope value)
• Interest rates: 0.85% to 1.50% per month
• Exit strategy: Secure planning permission, then either develop, sell, or refinance
• Lender appetite: Selective — fewer lenders will participate, and terms reflect the higher risk

Agricultural or Green Belt Land

Land classified as agricultural or within the green belt has very limited development potential unless specific exceptions apply.

• LTV: Up to 50% of agricultural value
• Interest rates: 1.0% to 1.50% per month
• Exit strategy: Must demonstrate a credible path to development or alternative use
• Lender appetite: Limited — only specialist lenders will consider this

**Key Takeaway:** The planning status of the land is the single biggest factor in determining what bridging terms are available. Land with planning permission is far easier and cheaper to finance than land without.

The Land Acquisition Process

Step 1: Due Diligence

Before purchasing any development land, thorough due diligence is essential:

• Title investigation: Are there any restrictive covenants, rights of way, or ownership disputes?
• Planning history: What applications have been made previously? Were any refused, and if so, why?
• Local Development Plan: Does the local authority's plan support development on this site?
• Environmental assessment: Is the land contaminated? Is it in a flood zone? Are there protected species?
• Access and services: Can the site be accessed from the public highway? Are utilities available?
• Ground conditions: A geotechnical survey reveals whether the ground can support the proposed development

Step 2: Planning Assessment

Before committing to a purchase, get a professional planning assessment:

• Instruct a planning consultant to advise on the likelihood of securing permission
• Review the Local Plan and any site-specific allocations
• Check for permitted development rights that might apply
• Assess whether prior approval routes are available (particularly for agricultural conversions)
• Understand the Community Infrastructure Levy (CIL) and Section 106 obligations that may apply

Step 3: Financial Modelling

Model the full development opportunity:

• Land cost plus SDLT and acquisition fees
• Planning costs (application fees, consultant fees, appeal costs if necessary)
• Holding costs during the planning period (bridging interest, insurance, land maintenance)
• Development costs (construction, professional fees, contingency)
• Sales or rental income from the completed development
• Development finance costs for the build phase
• Profit margin — most lenders and investors target a minimum 20% profit on GDV

Step 4: Arrange Bridging Finance

With due diligence complete and numbers confirmed, approach a specialist broker to arrange the land bridge.

At Commercial Mortgages Broker, we work with lenders who specialise in land transactions. [Contact us](/contact) to discuss your land purchase.

Bridging to Development Finance: The Transition

The most common exit strategy for a land bridge is transitioning into **development finance** to fund the build phase. Here is how this works:

During the Bridge Period

1. You purchase the land using the bridging loan
2. You secure planning permission (if not already in place)
3. You finalise your development plans, appoint contractors, and prepare for construction
4. You arrange development finance to fund the build

The Development Finance Phase

Once planning is secured and you are ready to build, [development finance](/services/development-finance) replaces the bridge:

• The development loan repays the bridge as its first drawdown
• Further drawdowns fund construction in stages, verified by a monitoring surveyor
• Interest is typically rolled up into the loan and repaid from sales proceeds
• LTV: Up to 60-65% of GDV, with up to 90% of build costs funded

Key Considerations for the Transition

• Timing: Ensure your bridge term is long enough to cover the planning period plus time to arrange development finance. A 12 to 18 month bridge is typical for land with outline or no planning.
• Lender alignment: Some lenders offer both bridging and development finance, allowing a seamless transition. Others will require a full new application.
• Valuation: The land will be revalued with planning permission in place. The uplift in value from securing planning often significantly exceeds the cost of the bridge.

Costs: A Worked Example

Scenario: Land Purchase With Outline Planning

• Land purchase price: £500,000
• Land value with outline planning: £500,000
• Projected value with full planning: £750,000
• Bridging loan at 65% LTV: £325,000
• Your deposit: £175,000
• SDLT: £14,500
• Monthly rate: 0.80%
• Bridge term: 12 months (expecting to secure reserved matters in 6-9 months)
• Arrangement fee: 2% = £6,500
• Interest over 10 months: £325,000 x 0.80% x 10 = £26,000
• Planning consultant fees: £15,000
• Planning application fees: £5,000
• Valuation and legal fees: £4,000
• Total bridging and planning costs: £57,500

**Total cash invested**: £175,000 + £14,500 + £57,500 = £247,000

**Land value with full planning**: £750,000

**Equity created**: £750,000 - £325,000 (bridge) - £247,000 (cash) = £178,000

The development finance facility would then be based on the £750,000 land value plus the build costs, providing a significantly stronger funding position than if you had tried to arrange development finance on the unplanned land.

Planning Risk and How Lenders Assess It

Planning risk is the elephant in the room with land bridging. If planning permission is refused, the land's value may be significantly less than you paid, and your exit strategy collapses.

Lenders mitigate this risk by:

• Lending at conservative LTVs: 50-60% for land without planning, so even if the value drops, the loan is still covered
• Assessing planning probability: Lenders want a planning consultant's report confirming the likelihood of consent
• Requiring borrower experience: Experienced developers who have navigated the planning process before are favoured
• Charging higher rates: The additional risk is priced into the interest rate

As a borrower, you can mitigate planning risk by:

• Buying land allocated for development in the Local Plan
• Securing a pre-application response from the local planning authority before purchasing
• Using conditional contracts where the purchase is subject to planning being granted (though these are not always available in competitive situations)
• Understanding the appeal process — a refusal at first application does not necessarily mean the end

**Key Takeaway:** Never assume planning will be granted. Have a contingency plan, whether that is an appeal, a revised application, or a sale of the land in its current state. Lenders will ask about your Plan B.

Option Agreements and Conditional Contracts

For higher-risk land purchases, consider alternatives to outright acquisition:

Option Agreements

You pay the landowner a fee (the option premium) for the right to purchase the land at an agreed price within a set period. You exercise the option only if planning is secured.

• Advantage: You control the site without the full financial commitment
• Disadvantage: The option premium is non-refundable if planning is refused
• Bridging relevance: You may need bridging to fund the purchase when you exercise the option

Conditional Contracts

You exchange contracts with a condition that the sale only completes if planning permission is granted.

• Advantage: You are protected if planning is refused
• Disadvantage: The seller is locked in, so they may demand a higher price or shorter timescale
• Bridging relevance: You need fast finance to complete once the condition is satisfied

Subject to Planning Purchases

Some developers purchase land outright but negotiate a price reduction or overage clause linked to the planning outcome.

• Advantage: You own the land and control the planning process
• Disadvantage: You bear the full financial risk if planning is refused
• Bridging relevance: The bridge funds the acquisition; your exit depends on planning success

Specialist Lenders for Land Bridging

Land bridging is a specialist area. Key lenders active in this market include:

• Shawbrook: Established lender with appetite for land with planning
• Aldermore: Offers land bridging up to £15 million
• Investec: Focuses on larger land transactions with experienced developers
• LenInvest: Specialist in shorter-term land bridges
• Redwood: Considers land without planning at lower LTVs

Your broker will match your specific land purchase to the most suitable lender based on planning status, loan size, location, and your experience.

Common Mistakes in Land Bridging

• Overpaying based on hope value: Lenders value land based on its current use or with existing planning, not on what it might be worth if everything goes perfectly
• Underestimating the planning timeline: Planning applications take 8 to 13 weeks for a decision, and appeals can add 6 to 12 months. Factor this into your bridge term
• Insufficient cash reserves: You need to cover holding costs (interest, insurance, rates, land maintenance) throughout the bridge period
• Not having a Plan B: If planning is refused, what will you do? Having an alternative exit strategy protects you and reassures the lender
• Ignoring environmental issues: Contamination, flooding, or ecological constraints can derail both planning and financing

Getting Started

If you have identified a land opportunity, the first step is a conversation with a specialist broker. We will help you assess the viability, identify suitable lenders, and structure the finance to maximise your chances of success.

[Contact Commercial Mortgages Broker](/contact) for a free consultation on your land purchase.

Frequently Asked Questions

Can I get bridging finance for land without planning permission?

Yes, but at lower LTVs (typically 50-60%) and higher interest rates. Lenders will want to see a credible planning assessment and a clear strategy for securing permission. Your experience as a developer is also important.

How long can a land bridge last?

Most land bridges run for 12 to 24 months, giving you time to secure planning and arrange development finance. Some lenders offer terms up to 36 months for complex planning situations.

Will the lender fund the planning application costs?

Generally no. Planning consultant fees, application fees, and related costs are funded from your own resources. The bridging loan covers the land purchase price and associated transaction costs.

What happens if I cannot get planning permission?

You will need to repay the bridge from other sources — either by selling the land (potentially at a loss if it has no development value), refinancing against other assets, or using personal funds. This is why conservative financial planning and a contingency strategy are essential.

Can I buy land through a limited company?

Yes. Many developers purchase land through SPVs for tax efficiency and liability protection. Most bridging lenders are comfortable with company borrowers, though directors will typically need to provide personal guarantees.

*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*