Land finance. The hardest thing to place.

Land with planning permission

Land with detailed consent is the straightforward case. The planning outcome is settled, the value is evidenced by what the consent permits, and a lender is underwriting an asset with a defined development route rather than a hope.

Leverage is still lower than on built property. Land produces no income, cannot be let, and in a distressed sale takes considerably longer to move than a house does. Lenders price all three.

Typical uses: securing a site at speed ahead of a development facility, refinancing an existing charge so a development lender can take over, or releasing equity from land already owned to fund the next acquisition.

Land without planning permission

This is where most of the market stops. Without consent, the value of the land rests on what a planning authority might permit at some future date, and that is a judgement rather than a valuation.

Hope value is the term for the uplift above existing use value that the market ascribes to the prospect of consent. Valuers will assess it, lenders will discount it heavily, and some will not lend against it at all. Expect materially lower leverage than on consented land, and expect the lender to ask a question most borrowers have not prepared for: what happens if consent does not come.

The answer to that question decides the deal. A borrower who can service or repay the facility regardless of the planning outcome is fundable. A borrower whose entire exit depends on a consent that has not been granted is asking the lender to underwrite the planning system.

The planning bridge

A planning bridge holds a site through the application period, with a development facility taking over on grant. It is one of the more useful structures in property finance and one of the least well understood.

What makes it work: a realistic assessment of the determination timetable, a term with genuine contingency built in rather than an optimistic best case, and a fallback if the decision slips or goes against you. Statutory determination periods are a floor, not a forecast, and in Scotland the position differs again.

What makes it fail: setting the term to the statutory period and assuming the authority will meet it.

Why land is harder to place

• No income. Nothing to service the facility from, so the exit carries the entire weight of the case.
• Slow to sell. A distressed land sale takes far longer than a residential one, which is a recovery risk lenders price directly.
• Valuation is contested. Residual valuation on land involves more assumptions than a comparable sale on a house, and small changes in build cost or end value move the land value considerably.
• Fewer lenders are set up for it. Land lending needs a different underwriting skill set, and many otherwise capable lenders simply decline the asset class.
• Title issues are common. Access rights, overage, ransom strips and option arrangements appear far more often on land than on built property, and each narrows the field further.

The practical consequence is that the spread between the best and worst available terms is wider on land than on almost anything else we arrange. On a straightforward residential bridge, testing the whole market improves the terms. On land, it often decides whether the deal happens at all.

Overage, options and ransom strips

Overage is a seller's right to a further payment if value is later unlocked, typically on grant of consent. It runs with the land, binds a lender enforcing security, and has to be quantified rather than noted.

Option and promotion agreements raise a question lenders find awkward: what exactly is the security. An option is a contractual right rather than ownership, and a promotion agreement gives a promoter a share of net proceeds, which affects both charge priority and the realisable value.

Ransom strips, where a third party controls access, can render an otherwise valuable site unfundable until resolved.

None of these are fatal. All of them need to be on the table at enquiry rather than discovered in legals, because each one changes which lenders can look at the case.

What to send us

The site and its current planning status, whether you own it or are buying, the price or value, what you want to borrow and for how long, and the exit. If there is an application in progress, tell us where it sits and with which authority. If there is overage, an option or an access issue, tell us that first rather than last.

Scotland works differently again, and the land lender pool there is thinner still. See our Scotland guide. Once consent is in place and you are building, the route is development finance.