Permitted Development Finance
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Permitted Development Finance
We’re talking about permitted development finance with Sam Bull, exploring how it works and what it can be used for.
What is permitted development finance and what is allowed under permitted development?
Permitted development finance refers to a type of development finance used for opportunities that don’t have to go through a full planning permission application. They’ve already been pre-approved under the General Permitted Development (GPD) order.
Permitted development rights allow households to carry out home improvements with guaranteed consent from the local authority. Projects include adding a front porch or doing a garage conversion or loft conversion.
Permitted development finance is also used to change the usage of commercial buildings to residential usage.
This piece of legislation was introduced in 2015 and makes it much easier to convert commercial premises such as farm buildings, office blocks and shops, cafes and restaurants into new homes without having to go through full planning permission.
Of course, you would still need prior approval from the local council as certain criteria do need to be met. Development finance would assist in the purchase of the commercial premises and funding the associated building costs in converting the commercial and unit into a residential home.
Who is eligible for permitted development finance?
Anyone can apply for development finance, subject to being at least 18 years old and being a UK resident. Lenders usually do want to see someone with a team of professionals in place. They like you to have your builder and architect on board.
Lenders like to work with experienced property developers who have a clear plan for the development. So although anyone is specifically eligible, it is subject to the lender’s criteria.
How much can I borrow for permitted property development and how long can I borrow the money for?
You can typically borrow up to 75% Loan to Value for the initial land purchase and up to 100% percent of the total build cost, under permitted development finance. Development finance lenders will never lend more than 75% of the Gross Development Value (GDV) – which is the estimated value of the completed development.
Terms are available from six to 36 months and that will depend on the size of the project and the estimated build time.
What are the repayment terms for a permitted development loan? What are the costs involved?
Interest is usually charged monthly on a permitted development loan and most property developers choose to roll the interest up. It means that you wouldn’t actually make any monthly payments.
Instead, the total interest accrued would be repaid on the exit of the development finance. It is important to consider all the costs involved when looking to start a project under permitted development – especially when using finance.
The main associated costs would be the interest, as we just mentioned, and this is usually charged monthly. It is rolled up and added to the loan.
Lenders typically have an arrangement fee of between 1% or 2% of the gross loan amount. That can usually be included within the gross loan. You’ll also need to pay for a RICS valuation of the site.
Development finance valuation fees are typically much higher than your standard residential fee. The surveyor will need to assess the current value of the development site and additionally estimate the expenses of the development, the project duration and the potential value of the completed project.
Finally, development finance usually has an exit fee, which is typically 1% of the gross loan.
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Everyone’s different. You might be self-employed. You might have some credit history issues – whatever your situation, we will find the most suitable product available to you from across the whole market.
Can I use permitted development finance for a residential development project?
Yes, you can. The type of project will influence the type of finance that we’d recommend. We would review your proposed residential development project and once we’ve got the full details of the costs, we would recommend the most suitable finance tool.
Do I need drawings for permitted development?
Yes, you will still need architect’s drawings on permitted developments. When converting a commercial property to residential use you will still need to submit an application for prior approval from the local council.
Although you don’t need to submit a full planning permission application, your local council will need to see your plans to make sure that they fit the criteria.
How many times can you build under permitted development?
For residential homeowners you can only use permitted development once for extension work. For property developers looking to take advantage of permitted development projects under the change of usage from commercial to residential, there’s no limit on the projects they can complete.
How many metres is a permitted development?
Permitted development must not change the use of more than 1,500 square metres of floor space.
What is the 50% rule for permitted development?
With residential homes, extensions should not exceed 50% of the total area of land around the original house.
Can you be refused permitted development?
As with any type of mortgage, the lender will assess your application and make a decision on whether they want to lend. As this is a specialist type of commercial finance, we really recommend using a mortgage broker who specialises in permitted development applications.
Your broker will work with you to make sure that your application is going to have the best chance of being approved. We’ll check through all the figures up front to make sure that the lender will be happy.
What if I have bad credit?
If you have bad credit we will first of all request a copy of your credit report to see exactly what the issues are. We will then determine what options you have from there.
Having bad credit doesn’t automatically mean you won’t qualify for development finance.
What are the advantages and disadvantages of permitted development finance?
The main advantage of looking at a project with permitted development is that you don’t need to go through the lengthy planning permission process. Because planning permission is not needed, development finance can be arranged quickly.
That means you can start your build without any unnecessary delays, so potentially you’ll have a quicker project turnaround and faster profits.
Of course, any project has its risks. If your build doesn’t go to plan and your costs spiral over what you’d planned upfront, you may struggle to repay the loan at the end. It’s therefore vitally important that your schedule of works is accurate, before any applications have been made. That includes having a contingency fund.
What’s the application process for a permitted development loan?
Your mortgage broker will usually give you a checklist of items that we need in order to submit your development finance loan application. These will include your architect plans, your schedule of works and confirmation of your professional build team – including your builder’s CV.
We would need to know the gross development value of the project, how much cash you have upfront to start it, and how long you expect the project to take. Once we’ve got all these details we will find a suitable provider to lend at the cheapest rate for that specific project. We will of course submit all the necessary applications to the lender.
All development finance – especially on permitted developments – is quite specialist. So it’s important to work with a broker who has experience in these types of loans. We will help you find the most suitable deal, whether that’s the lender who will lend the most, or the one with the cheapest product.
We’ll check all your paperwork and make sure the figures all stack up, to make sure you achieve a successful development.
Your home may be repossessed if you do not keep up with your mortgage repayments.
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