If you are committed to making real money through property development, a smart move would be to purchase the land BEFORE the planning permission is granted. Sellers are usually worried, the price is almost always better, and you have complete control over what is going to happen on the site. Win-win.
The big problem? Ordinary banks will not lend money for land without planning. A house on it = security, in their view. So, the majority of developers end up doing nothing… whereas the clever ones are using bridging to take the lead.
It is a real-life story of how it really is.
Why buying land early is such a no-brainer
It is estimated that half of the best locations do not even go out for sale with planning already done. What you can find are:
- Plots where the old permission has just expired
- Fields on the edge of towns that everyone knows will get nodded through eventually
- Brownfield sites waiting for houses
- Big gardens perfect for dividing
- Commercial yards ready to be converted into flats
Purchase it at a low price, do the planning yourself and that piece of land is worth two or three times what you initially paid. But the thing is, you have to be quick, and this is the reason why bridging is used.
Why high-street banks run a mile
To a regular mortgage lender, a bare piece of land appears to be a risky investment:
- There is nothing to take back by the bank except a field and some rabbits
- They have no idea what the value will be until the council says yes
- There is no rental income that can be used to cover the payments
They want to be sure. Bridging lenders, on the other hand, do not worry about it at all – they only take a look at the current value, your track record, and if you have a credible way out.
How bridging actually gets you the land
Bridging is designed for “unusual” cases like this one to help you get:
- Money within days or weeks, not months
- The possibility of purchasing land that is without any prior obligations
- A loan based on the current value of the property (and not some future value that is still up in the air)
- Enough time to go ahead with the planning application while in possession of it
What kind of land can you buy in that way?
Almost any kind of land:
- Sites with expired permission (simple win – just re-apply)
- Unspoiled fields with no previous planning history
- Brownfield or former industrial land
- Back-land or large gardens
- Commercial properties that you want to convert into residential ones
- Land bought at an auction where the time-frame for completion is 28 days
How it gives you a massive head-start on planning
After it has been purchased by you, you will not need to request an extension from the vendor while you twiddle your thumbs with the drawings. You have the possibility to:
- Hold real pre-application meetings with the council
- Get your architect to change the plans until they are foolproof
- Do all the surveys (tree, ecology, drainage, whatever)
- Submit a solid application
The council loves working with the real owner rather than an option-holder who might just walk away. Your chances of getting the consent increase enormously.
How much will a bridging lender actually give you?
Not nearly as much as they would on a house. On raw land without any plans for development, you are normally allowed to borrow 50-65% of the value, sometimes even less if it is good farmland. That means that you need a big deposit – however, the moment when you have been granted the planning permission, you can refinance and take most of your money out again. That is the game.
The exit – how you actually pay it back
Lenders focus a lot on this (and rightly so). The most common ways out:
- Get planning and refinance with proper development finance
- Get planning and sell the site with permission for a quick profit
- Sell part off and build the rest yourself
- JV partner coming in once the project is de-risked
Provided that you have a realistic plan (and a bit of previous experience), they would give you their blessing.
The risks – don’t kid yourself
Not everything is smooth sailing in this business:
- Planning may take forever or be refused
- You may need expensive surveys or drainage work that you haven’t considered
- In the case that the market turns during the time of your waiting, the “with planning” value will decrease
- Every month that you are on bridging, you are paying interest
Do your homework, double your cost estimations, and have a Plan B.
Why bridging gives you the edge over everyone else
The majority of buyers are still trying to get an option agreed or asking their bank for a mortgage that they will never be granted. The moment when you come in with bridging and say “we’ll complete in two weeks, cash”, is the moment when everybody wins. The vendor, the agent, and you – although for a different reason. The vendor loves it, the agent loves it and you usually knock a few quid off the price because you’re the only one who can actually do the deal.
Bottom line
If it is the really good sites that you want – the ones that haven’t got planning yet but obviously will – bridging is almost the only way to get in. Yes, you would need some decent equity or cash to put down, and yes, you would need to be knowledgeable about the planning side of things… but if you get it right, you’ll be buying land at 50-70p in the pound compared to what it’ll be worth in 12-18 months.
When correctly employed, it is one of the most potent instruments a serious developer possesses.