Bridging on Land: what changes when planning lands

There are really only two situations, and almost everything else follows from which one you’re in: pre-planning permission, and post-planning permission.

Why planning changes the value so completely

A piece of land with planning permission has a value, because the local authority has said yes, you may build this many properties here. A house has a value. A unit has a value. So the land underneath a permission has a value.

Land without planning is a different thing entirely, and people consistently overestimate what it’s worth.

Ask yourself who actually wants it. I was up a mountain recently and there was a piece of land there. What’s that worth to somebody? There’s nothing on it and nothing can go on it.

I have a client who owns stables on a piece of land. To somebody with horses, that’s worth something. But you need a buyer who owns horses and wants land for them and wants it there. That’s a very small group of people, and a very small group of buyers means a very small value.

So when you’re buying or remortgaging land without planning, start from this: the value is probably not as high as you think.

Can you still borrow against land with no planning?

Yes. Just not much.

If you already own the land, you can pull money out of it and use it elsewhere, particularly if you have a planning application going through. And if you want to buy a piece of land and you’re confident permission will be granted, there are lenders who will look at it.

But understand the shape of it. This is a small number of lenders taking a carefully limited risk, and you’re typically looking at around 50% loan to value on a gross basis.

If you’ve read the piece on gross and net, you’ll know what happens next. A 50% gross facility nets down to something more like 40% once the fees and the retained interest come out.

Which means you’re funding around 60% of it yourself. If you already own the land and you’re raising money against it, you’re pulling out about 40% and leaving 60% in.

How a lender gets comfortable with land that has no permission

This is the part most people don’t realise, and it’s genuinely reassuring.

The lenders who play in this space usually have a real estate team in-house. People with serious experience in the sector, often former property developers. When your case lands, they go and do their own research.

They look at what the local authority has actually been approving. Planning decisions are public: you can look up what has been accepted and what has been refused in that area. They do their own due diligence, and if they reach the same conclusion you did, that permission here is realistic, they’ll consider funding it.

It isn’t a guarantee that they’ll lend. It’s a serious second opinion from people who do this for a living.

And there’s one condition underneath all of it: a valid exit strategy. That’s the thing I come back to on every bridge, and on land it matters more than anywhere.

The risk, stated plainly

Suppose you buy the land with a bridge, and the planning application is refused.

You now have a debt to repay, secured on something that most people don’t want. Not everyone. Somebody will want that land for something. But the pool of buyers is small, and small pools make for slow sales and low prices.

That’s why the research matters, and it’s why you should do it before you commit rather than after. The lender is going to do it either way. They won’t lend against a piece of land, whether it’s valued at a hundred thousand or a million, without going away and forming their own view on whether permission is realistic.

Do the same work they’re going to do. Look at what the council has approved nearby and what it has turned down. A three-bed house on a residential street is one conversation. A sixteen-storey block of flats on that same street is a different one.

What happens when permission comes through

Here’s a real one, and it’s the clearest illustration I have.

A client had a house with a very large garden. The garden ran all the way back onto the next street, where there were already houses. Looking at it, you could see that the end of that garden could be cut off and built on.

So that’s what he did. We remortgaged the house onto a standard buy to let, and the title was split so the end of the garden became a separate plot.

That plot was valued at £75,000. No planning permission on it at all.

He then spent his own money going through the planning process with the local authority. Plenty of conditions along the way, including planting a set number of trees. Anyone who has been through it knows exactly what that’s like.

Permission came back: a six-bed detached house.

The plot was then worth £200,000.

Same piece of land. Same grass. Nothing physical changed. It went from £75,000 to £200,000 because somebody official said yes.

And the house that could be built on it had a gross development value of £550,000. There’s a full write-up of that deal if you want the detail.

From land into development finance

At that point the client wanted to build, and that means the conversation moves from bridging into development finance.

He needed to release the value from the land to start, and then more money to finish. On this case, against the £200,000 land value:

The day one money got the foundations going. Then the lender sends a valuer out to confirm the work has actually been done and done to standard, and only then is the next tranche released, around £50,000 at a time out of the £200,000.

Two things worth noticing.

The build facility was £200,000 against a £250,000 build cost. The client funds the difference. That’s deliberate. You put skin in the game and you get the first stage done before anybody releases anything.

The day one advance was only about a third of the land value, even with permission granted. Land is still land until there’s a building on it.

Staged drawdowns are a subject of their own and I won’t go further into them here.

So, can you borrow against land?

Yes. The only question that really matters is whether you have planning permission.

If you have it, the land has a value the market recognises, and the conversation is about how much and on what terms.

If you don’t have it, you can still borrow, but expect around half the value on a gross basis, expect the lender to do its own planning research before it commits, and expect the exit strategy to be the thing everything hinges on.

Either way it’s worth a conversation. Ring me on 0330 133 4442 and tell me which of the two you’re in.

Figures relate to the circumstances and the lending terms available at the time of that transaction, and the terms available to somebody else may be different. Bridging finance is short-term secured borrowing and it can be expensive. If a secured loan is not repaid in line with its terms, the lender may take enforcement action against the property or any other security provided. This is general information, not personalised advice.