Land finance for sites with or without planning permission

What land finance is and when it is used

Land finance is a short-term loan secured on land. In most cases it is a bridging loan: you borrow for a fixed term and repay the whole amount in one go when you sell, refinance or move on to a development loan. It is used to buy a site, to buy before planning permission is granted, or to release money from land you already own.

We are a broker. We introduce you to lenders, and the lender provides the loan and sets its terms.

Who it suits, and who it does not

It suits developers securing a site before the build funding is ready, investors aiming to gain planning and sell on, landowners raising money, and self-builders buying a plot.

It does not suit a purchase with no clear way to repay. Bare land rarely earns an income, so the loan has to be cleared by a sale, a refinance or a development loan. If that depends on a planning decision that may never come, think hard before you borrow.

If you or your family will live in the home you build, say so at the start. FCA guidance says a loan to an individual, secured on land where at least 40% is used or intended to be used as a dwelling, can be a regulated mortgage contract. Arranging one is a regulated activity, and you can check any firm's status on the FCA Register.

How lenders treat full, outline and no planning permission

Planning is the biggest single factor in whether a lender will lend on land, how cautiously and how much. The figures come from the lender's offer.

How land finance works step by step

1. Tell us about the site: the price, the planning position, the loan you need and how you will repay it.
2. We approach suitable lenders and come back with outline terms.
3. The lender's valuer reports on the land as it stands, and solicitors check the title, access and any restrictions.
4. The loan completes. The money buys the site, or is paid to you if you already own it.
5. During the term you secure the planning, arrange the development loan or market the site.
6. The loan, interest and fees are repaid in full from that exit.

What lenders look at

• Planning status and history. What has been granted, refused or appealed, the conditions attached and when any permission lapses.
• Access and services. A legal right of way to a public road, and whether water, power and drainage can be connected.
• Title, restrictions and overage. Covenants, rights of way and any overage agreement, which gives a previous owner a further payment if the land gains planning or is developed.
• Valuation as it stands today. The lender relies on its valuer's figure for the land in its current state, not the price you agreed or the finished scheme's value.
• Your experience. What you have done with similar sites, and who is advising you.
• The exit. Evidence that the sale, refinance or development loan can happen within the term.

Planning basics that affect finance

Lenders treat land as having planning permission only once the decision is issued. The government's guidance on when permission is required explains which plans need it.

Some changes can go ahead under permitted development rights without an application. In England, Class MA of the General Permitted Development Order has allowed buildings in commercial, business and service use to change to homes since 1 August 2021, subject to prior approval. A local planning authority can withdraw such rights in a defined area with an article 4 direction, and a planning application is then needed instead. These rules are for England and they change, so confirm the position for your site with the authority.

How the loan is repaid

There are three usual exit strategies:

• Development finance. Once planning is in place, a development finance facility repays the land loan and then funds the build in stages.
• Sale with the benefit of planning. You sell the site to a builder or developer once consent is granted.
• Refinance. You move the debt to another loan, secured on the site or on other property you own.

Buying land at auction

Most auction sales are unconditional, and a binding contract exists when the hammer falls (RICS guidance for England and Wales). You cannot make the purchase subject to finance or planning afterwards. Before you bid, read the legal pack for access, covenants and overage, and check that a lender will lend on the lot. See auction bridging loans for how the timing works.

Land finance, development finance and commercial mortgages

A land loan buys the site: one advance, secured on the land as it stands and repaid in one go. Development finance funds the build: money is released in stages as work is completed, and the lender assesses the costs and the finished value. Many schemes use one after the other, with development exit finance to follow once the build is complete.

A commercial mortgage is long-term borrowing repaid from income. Land that earns rent, such as a let yard or storage site, may suit commercial property finance. Bare land held for development usually does not, because there is no income to cover the payments.

Stamp duty and VAT on land

In England and Northern Ireland, GOV.UK lists land that is not part of a dwelling's garden or grounds as non-residential for Stamp Duty Land Tax. A bare site therefore usually falls under the non-residential and mixed rates. Scotland and Wales have their own land taxes. VAT can also be charged on land in some cases, and HMRC's VAT Notice 708 covers the building work that follows. HMRC decides how the rules apply, so ask your solicitor and accountant before you exchange.

Costs to expect

The cost of a land loan is made up of:

• interest, usually quoted per month and often added to the loan or deducted at the start
• the lender's arrangement fee
• valuation and legal fees
• any exit fee or broker fee, which should be set out in writing before you commit

The lender's offer sets the rate and fees. To test your own figures, use the bridging loan calculator. Budget separately for land tax, any VAT and the planning work.

Risks to weigh

• Planning is refused or delayed. If the exit depends on a consent, a refusal or a slow decision can leave the loan due with no way to repay it. An extension costs more and is not always offered.
• Value without planning. Without consent, the land may be worth only its present-use value, which can be less than you paid and less than you owe.

The loan is secured on the land, and sometimes on other property as well. If it is not repaid, the lender can repossess and sell that security. Borrow only against an exit you can evidence, and have a second route in case the first fails.

What to have ready before you enquire

• The site address, a plan or title number, and the price or your estimate of value
• The planning decision notice and drawings, or the planning history if nothing has been granted
• What you know about access, services, restrictions and overage
• The loan you need, for how long, and what you are putting in
• Your experience, your exit and the evidence for it

Then tell us about the site and we will say whether lenders are likely to consider it.