Rural Bridging Loans: What You Need to Know

– Introduction
– What Are Rural Bridging Loans?
– Case Study: Recent Success Story
– Key Features of Rural Bridging Loans
– Common Uses of Rural Bridging Loans
– Advantages of Rural Bridging Loans
– Challenges and Risks
– Tips for Choosing the Right Loan
– Conclusion

Rural bridging loans are short term secured finance for individuals and businesses looking to secure property or land in rural areas. This finance is designed to “bridge” the gap between a temporary shortfall in cashflow and a more permanent funding solution. Whether you’re a farmer, land developer, or someone planning a rural retreat, understanding the complexities of rural bridging loans can help you make informed decisions.

Rural bridging loans are short-term financing options tailored to meet the needs of people acquiring land or property in rural areas. Unlike conventional loans, they are:

• Quick to arrange: Funds are typically available within days.
• Flexible in usage: Can be used for various purposes, including land purchases, agricultural investments, or property renovations.
• Secured: Usually secured against existing assets, such as property or land.

These loans are often an invaluable solution for those who need immediate funds while waiting for a longer-term financial arrangement, such as a mortgage or sale proceeds.

At BIG we recently completed a bridging loan on some rural land in Crawley. The loan was advanced to refinance a high street lender and provide additional funds for demolition works at the site, as well as architects and planning costs.

The security comprised approximately 50 stables, 43 acres of pastureland, a range of stabling accommodation and a redundant residential cottage.

We were able to offer a bridging loan with a further works facility;

– £630k to settle the existing secured loan

– £400k to be used to knock down and rebuild the Residential dwelling

– £270k will be available via a drawdown facility to advance the works and planning on the rest of the site.

Short-Term Nature

The duration of rural bridging loans typically ranges from a few weeks to 12-24 months. This makes them ideal for bridging temporary funding gaps.

Higher Interest Rates

Since these loans are short-term and come with expedited approval, they often carry higher interest rates than traditional loans. Borrowers should carefully consider this when evaluating their options and what the overall cost will be.

Flexible Repayment Options

Bridging loans are only repaid in full at the end of the term, however borrowers can choose to also roll-up the interest over the loan term (known as “retained interest”) or clear through monthly interest payments (known as “serviced interest”.)

Asset-Based Security

Lenders usually require collateral in the form of land, property, or other tangible assets. The value of the collateral significantly influences the loan amount and terms.

1. Purchasing Farmland: Ideal for farmers looking to expand operations quickly.
2. Property Renovations: Useful for making properties habitable or increasing their market value.
3. Auction Purchases: Enables quick access to funds for buying properties at auctions, where completion is normally required within 28 days.
4. Business Expansion: Can be used to invest in equipment, storage, or other infrastructure for rural enterprises.

• Speed: Funds are often disbursed much faster than traditional loans.
• Flexibility: Can be customised to suit a variety of needs, usually with the option to repay the loan early if finances are available.
• Accessibility: Available to those with unconventional income sources, such as farmers or rural entrepreneurs.
• Opportunity Maximisation: Allows borrowers to act quickly on time-sensitive opportunities, such as auctions or limited-time property deals.

1. Higher Costs: The expedited nature and short-term structure often result in higher interest rates and fees. Borrowers should therefore consider if a bridging loan is the most suitable and cost-effective option for their needs.
2. Risk of Default: Secured loans mean the lender can repossess the property if the borrower fails to repay. This means your investment could be at risk.
3. Limited Lender Options: Not all financial institutions offer rural bridging loans, which can limit choices available. Lenders may also have specific criteria that needs to be met. At BIG Property Finance, we can lend against rural property that is not occupied as the borrower’s main residence. We would rely upon an independent valuation of the property confirming its 180-day value. If lending against land, we would have limited appetite for agricultural land that has no further planning approval. For lending purposes, we would appraise agricultural land at circa £10,000 per acre.
4. Market Dependency: The success of bridging loans often depends on favourable market conditions, such as the quick sale of an existing property.

1. Compare Multiple Lenders: Don’t settle for the first offer; shop around for better terms. This allows you to make a comparison and negotiate.
2. Evaluate Costs: Look beyond interest rates to include fees and other charges. Additional costs may include, valuation costs, solicitors fees, building surveys, exit fees, admin costs and early repayment fees.
3. Understand Repayment Terms: Ensure the repayment structure aligns with your financial plans. Don’t be too quick to accept loan terms without fully understanding to small print, hidden costs and consequences of missing repayment deadlines.
4. Seek Expert Advice: Consult financial advisors or brokers who specialise in rural loans. They can assess your needs and approach lenders on your behalf. Brokers can utilise their existing connections and industry knowledge to secure terms quickly from reliable and trusted firms they have used previously.

Rural bridging loans can be a game-changer for those navigating the unique challenges of rural property and land acquisition. However, their short-term nature, higher costs, and risks require careful consideration. By understanding the features, benefits, and application process, you can make the best choice to suit your needs.

If you’re considering a rural bridging loan, take the time to explore your options, seek expert guidance, and ensure the terms align with your financial goals. With the right approach, these loans can provide the bridge you need to achieve your rural aspirations. Contact us today on 121 348 7830 or at info@bigpropertyfinance.co.uk