September 29th, 2021. Andrew Hosford
How To Utilise Pre-Planning and Land Finance
How can you utilise pre-planning and land finance for ambitious projects and to add value? Understanding the products available is essential. Here, we outline the options you have available when it comes to procuring land finance, so that you can progress with certainty.
A ground-up development can be a lucrative project, but unless you are adding an uplift in value by gaining or variating planning to the site, typically agents will be selling at a price that works back to a 20% profit on cost.
Furthermore, finding the perfect piece of land, plus a suitable loan for your land purchase, can be a significant undertaking. How can you ensure your land development will pay dividends? And, how can you assure lenders will back your project?
Choosing Your Land
If you are buying land without having funding and planning in place to devlop the site, this will be considered a higher risk level. Finding the appropriate finance therefore involves speaking to a select group of lenders. To ensure these specialist lenders will be receptive to your proposal, select your land carefully. During your search, consider:
- Do you have a clear vision and long-term plan?
- Is there a requirement to buy the land quickly to secure it, prior to arranging development funding?
- Types of land – there may be different planning regulations depending on the kind of land you choose (for instance greenfield, adopted, brownfield etc.).
- Research the area – liaise with a local property surveyor to ensure you understand access, amenities, local plans, highways and transport.
- Planning permission – the current planning stage is a big factor, as links risk to reward. There will be a greater uplift in value on the site if you gain planning permission, but you will need to understand the costs and time to achieve this along with the holding cost.
- Surveys – a proper survey of the land is essential, to forewarn you of any potential issues.
By thoroughly assessing the land before purchase, you can gain a clear picture of your expected returns, and prepare a detailed proposal for prospective lenders to buy into.
Consider Your Financial Needs
As a developer you may require finance simply for your land purchase, or to cover the planning and building costs of the project as well.
In either case, bridging loans are often used due to the speed at which they can be secured. With land in prime development areas going very quickly, this is a key advantage to bridging finance.
There are different kinds of bridging finance, and the type of loan you require will largely depend on whether you have a set end date for your project:
- Pre planning bridge (taken so planning can be gained or amended).
- Land with planning bridge (taken usually for speed, to purchase the site with planning).
How To Finance Your Land Purchase
Often, developers will have just a short window to secure the necessary finance for their development project – for instance, if purchasing prime land, or through an auction. Partnering with an experienced bridging finance expert will help you navigate the process with minimal delays and stress. Tom Lee, Managing Director at Pure Structured Finance, says:
“When looking at projects with clients, funding an off-the-shelf development which fits required profit returns and strategy is becoming ever more difficult.
“More developers are turning to land and pre-planning finance. This enables them to create an end product that fits their goals, and also increase the value of the site post-purchase, which can also be included as developer equity. We can stretch to 70% on some land deals with rates as low as 6%pa.”
Below, we answer some common questions about the process of securing finance for your land purchase.
Can I Get a Land Bridge Loan Without Planning Permission?
Land purchases using bridging finance are subject to fewer demands than traditional, long-term finance. You can purchase land without planning permission and still secure a bridging loan, though for larger development projects, the security of outline/detailed planning may make the proposition more attractive to lenders.
Once in place, bridging finance will allow you to purchase the land, and provide the time needed to make any changes or apply for permissions that you need to transfer on to a development loan to build your project.
How Much Can I Borrow?
The amount you can secure through bridging finance has no upper limit. In fact, we have secured land loans exceeding £25,000,000. Some factors would include:
- Your experience, asset wealth and past projects.
- The location and financial strength of the project.
- Your exit strategy.
- The level of planning that is in place.
What Level of Risk is Involved?
As a type of short-term finance, bridging loans may have higher interest rates than traditional long-term finance, but rewards are far greater. To limit your risk, make sure you have a strong exit strategy in place as early as possible.
With all types of finance, knowing the risks involved before agreeing to the contract is vital. Each lender will offer slightly different interest rates and terms, while the guarantees they require may differ too. By thoroughly checking the contract and having a detailed plan for your land development, you can make sure bridging finance is the right option for you.
Bespoke Finance For Your Land Development
If time is of the essence, speak to our experienced bridging finance team today. With no geographical or maximum funding limits, we can source the right finance for your project, regardless of size or complexity.
Speak to a member of the Pure Structured Finance team: call 02080 579 178 or request a callback.
Article By Andrew Hosford
September 29th, 2021
Andrew is a Director within Pure Structured Finance and a founding member of the company.
He previously spent a decade with a real estate advisory firm where he was a Director focused on arranging finance for property investors and developers across all asset classes.See more articles by Andrew