Permitted Development Finance
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Author: Gary Hemming CeMAP CeFA CeFA CSP
20+ years experience in development finance
Permitted development finance is a type of development finance that allows you to finance your PDR development projects. We cover a lot of the key issues on the sub-section of the development market and give some key insights on how to get the best out of this type of development finance.
We’ll delve into the nitty-gritty of permitted development, explore the advantages and potential challenges of this type of development finance, and provide you with the knowledge you need to make informed decisions on raising finance for finance for your next development.
What we cover in this article:
Understanding Permitted Development
Permitted development, a term that might sound a bit complex, but fear not, we’re here to demystify it. In the simplest terms, permitted development refers to certain types of development that do not require a full planning permission from the local planning authority. This concept has its roots in the Town and Country Planning (General Permitted Development) Order of 2015, a key piece of legislation in the UK property sector.
This order, often referred to as the GPDO, has revolutionised the property development landscape, providing developers and landlords with a streamlined path to transform and optimise their properties.
Advantages of Permitted Development Property Finance
Now, let’s talk about the good stuff – the benefits and advantages of opting for permitted development finance. Imagine you’re a property developer or a landlord. You’ve got this brilliant idea to transform a property, but you’re faced with financial constraints. This is where permitted development finance comes to the rescue, allowing you to borrow money to finance your development. Let’s break down the advantages of this type of finance.
Flexibility
One of the key advantages of development finance for pdr schemes is its flexibility. Unlike traditional loans, this type of finance is tailored to the specific needs of property developments. Whether you’re planning to convert an office building into residential flats or extend your buy-to-let property, permitted development finance can provide the financial backing you need.
Speed
In the world of property development, time is money. With development finance for pdr schemes, you can often access finance quicker than traditional lending routes, allowing you to kickstart your development project without unnecessary delays.
Profitability
By leveraging permitted development rights and securing the right finance, you can potentially increase the profitability of your development project. After all, the faster and smoother the development process, the quicker you can start reaping the rewards.
Disadvantages of Development Finance for Permitted Development
While permitted development loans offer numerous benefits, it’s important to be aware of potential drawbacks and challenges. Let’s break down the disadvantages of this type of finance.
Risk
As with any loan, there’s a level of risk involved. If the development project doesn’t go as planned, you might struggle to repay the loan. It’s crucial to have a solid business plan and contingency measures in place when it comes to repaying your finance at the end of your development.
Cost
Permitted development loans can sometimes come with higher interest rates compared to traditional loans. It’s important to factor in these costs when calculating the potential return on your development project.
Eligibility
Not all developments qualify for permitted development rights, which can limit your access to this type of finance. It’s essential to check whether your project falls within the scope of permitted development before banking on this form of finance.
Remember, knowledge is power. By understanding both the advantages and disadvantages of permitted development loans, you can make an informed decision that aligns with your property development goals and financial circumstances. Stay tuned as we delve deeper into the world of permitted development finance in the upcoming sections.
Is Opting for this type of Property Finance a Good Idea for my Developments?
So, you’re probably wondering, “Is opting for permitted development financing a good idea?” Well, like most things in life, the answer isn’t a simple yes or no. It’s more like a “it depends.” Let’s break it down further to help you really understand when raising finance for your development is a good idea.
Permitted development financing can be a fantastic tool in your property development toolkit. It offers the flexibility and speed that traditional loans often lack, making it a popular choice for developers looking to get their projects off the ground quickly. Plus, with the right project and a solid business plan, it can be a profitable venture.
But, and there’s always a but, it’s not without its risks. The cost of borrowing can be higher, and if your development project hits a snag, you could find yourself in a sticky financial situation.
Key Considerations when Securing PD Funding
Securing permitted development funding isn’t a decision to be taken lightly. Here are some key considerations when securing permitted development funding:
- Project Feasibility: Before you even think about applying for funding, you need to assess the feasibility of your development project. This includes everything from planning permission to market demand.
- Financial Implications: Understand the financial implications of your loan. This includes the interest rate, repayment terms, and any potential fees.
- Regulatory Requirements: Familiarise yourself with the regulatory requirements of permitted development. This includes understanding the Town and Country Planning (General Permitted Development) Order of 2015.
What are the Alternatives to Permitted Development Finance for my Property Business?
While permitted development finance can be a great option, it’s not the only game in town. There are other financing options available to property developers and landlords. Here are some alternatives to consider:
- Commercial Mortgages: These are often used for buying property or land for business purposes. They can offer lower interest rates than permitted development loans, but they often require a substantial deposit.
- Bridging Loans: These are short-term loans designed to bridge a gap in financing. They can be a good option if you need funds quickly, but they often come with higher interest rates.
- Crowdfunding: This involves raising funds from a large number of people, typically via the internet. It can be a good option for smaller projects, but it can be challenging to raise large amounts of money.
Process of Funding a Permitted Development Project
So, you’ve decided to go ahead with permitted development finance. What’s next? Well, securing funding for a permitted development project is a process, much like baking a cake. You can’t just throw all the ingredients in a bowl and hope for the best. You need to follow the recipe. Here’s a step-by-step guide:
- Plan Your Project: This includes everything from architectural plans to market research.
- Assess Your Finances: Determine how much you can afford to borrow and how you will repay the loan.
- Apply for Funding: This involves submitting a detailed application to a lender, which will include information about your project and your financial situation.
- Secure Funding: If your application is approved, you’ll receive the funds and can start your development project.
Remember, securing permitted development funding is a big decision, and it’s important to do your homework. With the right planning and preparation, it can be a powerful tool in your property development arsenal.
Understanding the Costs of a Permitted Development Loan
So, you’re considering a permitted development loan. That’s great! But before you dive in, it’s important to understand the costs associated with this type of finance. Here’s what you need to know about the costs of a permitted development loan:
- Interest Rates: These are the costs you pay to borrow money. Interest rates on permitted development loans can vary widely, depending on factors like the lender, the size of the loan, and your credit history.
- Fees: In addition to interest rates, you may also have to pay various fees. This could include arrangement fees, valuation fees, and legal fees. It’s important to factor these into your budget.
- Other Expenses: Don’t forget about other costs associated with your development project. This could include planning permission fees, architect fees, and construction costs. These aren’t part of the loan itself, but they’re still important to consider.
Risks of a Permitted Development Project
Every development project comes with its share of risks, and permitted development projects are no exception. Here are some potential risks associated with a permitted development project and how to mitigate them:
- Planning Risks: Even with permitted development rights, there’s always a risk that you could run into planning issues. It’s important to do your homework and understand the planning regulations in your area.
- Financial Risks: As with any loan, there’s a risk that you could struggle to repay the loan if your development project doesn’t go as planned. It’s crucial to have a solid financial plan and contingency measures in place.
- Market Risks: The property market can be unpredictable. If property prices fall, you could end up owing more than your property is worth. It’s important to keep an eye on market trends and be prepared to adapt your plans if necessary.
How Can Permitted Development Finance Help?
Permitted development finance can be a powerful tool for property developers and landlords who are looking to reduce their deposit through finance. It’s a great tool for property development business owners to increase their returns. Here’s how it can help:
- Cash Flow: Development finance for pdr schemes can provide the funds you need to get your development project off the ground. This can help to improve your cash flow and keep your project moving forward.
- Flexibility: Unlike traditional loans, permitted development finance is tailored to the needs of property developments. This means you can use the funds in a way that best suits your project.
- Profitability: With the right project and a solid business plan, development finance for pdr schemes can help to increase the profitability of your development project. For experienced developers, increased leverage achieved through development finance can reduce the required investment in a development project and allow you to finance more than one project at a time, improving your ROCE.
Remember, permitted development finance is a big decision, and it’s important to do your homework.
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Frequently Asked Questions
We’ve covered a lot of ground in this guide, but you might still have a few questions lingering in your mind. That’s perfectly normal! After all, permitted development financing is a complex topic. So, let’s tackle some of those burning questions in our FAQ section.
The application process for a permitted development loan typically involves submitting a detailed application to a lender. This includes information about your development project, your financial situation, and any relevant planning permissions.
Eligibility for permitted development finance can vary depending on the lender. However, generally, you’ll need to be a property developer or landlord with a viable development project. It’s also important to have a solid business plan and a clear understanding of the planning regulations in your area.
Repayment terms for a permitted development loan can vary widely. Some loans might require monthly repayments, while others might allow you to repay the loan in a lump sum at the end of the loan term. It’s important to understand the repayment terms before you take out the loan.
Yes, permitted development finance can be used for a variety of development projects, including residential developments. However, it’s important to check whether your project falls within the scope of permitted development before banking on this form of finance.
Yes! Permitted development finance can be used for a variety of projects, including commercial to residential conversions.
Commercial to residential projects involve converting a commercial property, like an office building or a warehouse, into a residential property. It’s a complex process, but with the right planning and financing, it can result in a beautiful and profitable end product.
Permitted development finance can provide the funds you need to carry out this transformation. It can cover costs like purchasing the property, carrying out the conversion work, and even marketing the finished units.
If you’re unable to repay your permitted development loan, it’s important to contact your lender as soon as possible. They may be able to work with you to find a solution, such as extending the loan term or adjusting the repayment plan. However, it’s crucial to have a solid financial plan in place before you take out the loan to minimise this risk.
If you find yourself unable to repay your development lender, you should consider looking at other lenders to refinance. Suitable options if you’re looking to sell your build include development exit finance or a bridging loan. Bridging can be arranged quickly so it’s great when you need to repay your previous lenders quickly.
Alternatively, if you’re looking to retain your completed property, then you should look at other lenders and other funding solutions. In this case, mortgages tend to be the best option – either commercial or residential mortgages, depending on what the completed build is. It’s important to remember that you’ll be required to service the interest on a mortgage, so ensure this is affordable and always practice caution if you’re unsure.
Finally, if you intend to let your pdr development, but haven’t done so yet then consider bridging as a short-term solution to cover the gap while waiting for a tenant.
So, you’re interested in permitted development finance, but you’re not sure if you’re eligible. Well, you’re in luck! Permitted development finance is open to a wide range of applicants. Here’s who can apply:
- Individuals: Yes, you read that right. If you’re an individual with a viable development project, you can apply for permitted development finance.
- Partnerships: If you’re part of a partnership, you’re also eligible. It’s all about teamwork, after all.
- LLPs and Limited Companies: If you’re operating as an LLP or a limited company, you’re in the clear. Permitted development finance is open to you.
- Overseas Borrowers: Even if you’re based overseas, you can still apply for permitted development finance. It’s a global party!
The amount you can borrow with permitted development finance can vary widely. It depends on various factors, including the nature of your development project, the value of the property, and your financial situation. It’s important to discuss this with your lender to get a clear understanding of how much you can borrow.
The loan term for permitted development finance can also vary. Some loans might be for a short term of just a few months, while others might last for several years. Similarly, the length of your loan term will depend on your lender’s policies and your specific circumstances.
Absolutely! Many developers choose to repay their permitted development loan through the sale of the completed units.
Yes, you can! Refinancing to a buy to let mortgage is a common way to repay a permitted development loan. Just make sure you discuss this with your lender to ensure it’s a viable option for your specific circumstances.
Remember, permitted development finance is a flexible and versatile tool. Whether you’re an individual, a partnership, an LLP, a limited company, or an overseas borrower, there’s a good chance you can take advantage of this unique form of finance.
