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No Planning Consent

25th July 2022

By James Jones

Borrowing against property with no planning consent can be a challenge. Get yourself a well thought out plan and a specialist who can help with the funding strategy.

Planning consent is something you will need to present when you plan on building on acquired land. You will also require planning consent if you have plans to carry out heavy refurbishment on a property or building. You can obtain bridging finance with no planning consent but options can be scarce. Plus, you won’t be able to even start any work until you have planning consent. So, you will need to plan your finance strategy accordingly.

Always talk to an experienced mortgage and bridging broker at the earliest stage – definitely before you commit to purchase.

Buying land

It can be challenging raising finance to purchase land or property without planning consent, or to develop it. You may see the potential in your property if it’s likely to gain planning and then increase in value. But, any lender will consider that land as security, and will only base its lending on a surveyors valuation of the property. Therefore, even as a development of several houses, the value will be seen as a piece of land until it has planning consent and increases in value. This can often lead to a two loan process. One to buy the land. Then another to develop it when planning consent is granted.

Of course if you can acquire, or already own, land which already has planning consent, this makes life a whole lot easier.

This situation is common and there are a number of strategies you can follow to try and raise the cash you need. However, you need to be mindful that at some point, you may not get the planning consent you want. As a result of this, you could end up incurring significant abortive costs. Also, if you have taken out short-term borrowing, that may need to be paid back.

For example, let’s assume you have found a piece of land with no planning, in an area likely to get planning to build two houses. You need to raise money not only to purchase the land, but also to fund the development. If you have planning consent, development finance is perfect to help you buy and from the costs of the development. Check out this video which explains development finance:

Raising a deposit

Assuming you don’t have planning consent, development finance is not an option. Instead, you will have to raise a deposit. Firstly, you need to be aware that no one will fund 100% of the purchase price. Therefore, you will need to raise a deposit or cash to put towards the purchase of the development. Options include:

  • Remortgaging your home or other property that you own
  • Taking out a second charge mortgage on your home or other property you own
  • Offering the development lender a charge over other property you own
  • Using credit cards or unsecured loans
  • Borrowing from family and friends
  • Finding a co-investor who is prepared to put cash into the project.

Secondly, the deposit you need could vary depending on the asset you are buying. Referring to the previous example, a piece of land without planning is not an attractive asset. There aren’t many lenders willing to lend against it. Therefore, you’re only likely to be able to raise between 50% and 65% of its current value.

Term loan

If you have considerable disposable income, you could take out a term loan. A term loan is a repayment loan over a fixed period of time where you make the monthly payments. The advantage of this type of loan is that as long as you can afford the repayments, you can keep the loan as long as you wish until you gain planning consent. 

Bridging Loan

However, if you don’t have any disposable income, you may consider a bridging loan where the interest payments are rolled up into the amount you borrow. The advantage of this type of loan is that you don’t need to find the cash for the repayments. But, one disadvantage is, because the interest is included within the loan, it will reduce the amount of cash you get in hand. Another disadvantage is that bridging loans are normally arranged over a period of 12 to 18 months. Therefore, if you haven’t got planning consent within that period of time, you still need to pay the bridging loan and the interest back.

With bridging finance, you also need to demonstrate to the lender your exit strategy. The exit strategy is simply how you intend to repay the loan at the end of the term. This could come from the sale of the land, sale of other property or refinancing. You should talk to a broker who has experience in both bridging, and means of refinancing, at the outset to make sure the plan is viable.

Buying a property to extend without planning consent

This is easier to do than buying an area of land. Therefore, more lenders are willing to help. You will still need a deposit to purchase the property, depending on the condition of the property and its purpose. In addition, you may be able to use a mortgage, a residential bridging loan or even a development loan to buy it. Sometimes, people purchase property with the intention of making improvements and extensions under permitted development rights. Work that falls under under permitted development rights doesn’t need planning consent. However, building regulations may be required.

What is the difference between a bridging loan and a development loan?

Bridging loans allow you to “bridge the gap” towards buying a property to refurbish or extend. You may only need to carry out “light refurbishment.” Light refurbishment means no major structural work, building regulations or planning consent are needed. If you don’t have planning consent for your plan, you may need to consider taking out a bridging loan to purchase the property. If you already have gained planning consent, a bridging loan can help bridge the gap towards doing the remainder of the work needed.

Some lenders can accommodate both the bridging loan and the development loan which can  save you money. Again, you should talk to a specialist bridging development and commercial broker to get advantage of the savings.

You may wish to purchase a property and gain planning consent on it, with the intention to rent the property out in the interim. Provided the property is in a rent-able condition, you could potentially buy this with a buy to let mortgage. Then you could let the property for a year or maybe more. As a result, you’ve got income coming in whilst you are getting the planning consent. When planning consent has been granted, talk to your broker about the best way to fund the works.

Key points to consider

If you are experienced carrying out these types of developments, be prepared to evidence it. If you lack experience, lenders may lack confidence in your pitch. So have a well thought out plan, which includes a builder or architect who will manage everything for you. 

Talk to a specialist broker at the outset to make sure that the cost of purchase, cost of development and exit strategy have all been properly considered. Try to raise as large deposit as cheaply as you can to minimise the amount you need to borrow on either bridging or development finance.

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