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Knock it down and start again

Published on 20th August 2020 - Last update on 24th August 2020

How planning changes could open the door to profitable new building projects

As part of its response to covid - and its attempts to kickstart the economy - the government has made some major changes to planning laws. They are designed to cut council imposed red tape and help get development projects off the drawing board and onto the ground much faster.

Among the proposals - which will become the rules in September unless something goes drastically wrong - is one to scrap the need for full planning applications to demolish and rebuild unused buildings, and rules to make a change of use much easier to arrange.

It could open the doors to exciting new developments across the country.

Housing secretary Robert Jenrick said the new planning laws would deliver much-needed new homes and revitalise town centres across England. Building new homes is the obvious answer to the UK housing shortage, but suitable plots of land are becoming scarce and are rarely in the key locations that people actually want to live in. With the UK economy in turmoil after Covid, the government is looking at ways to stimulate activity - and especially the building market. In his ‘Build, Build, Build’ speech, Boris Johnson set out some major changes to the planning rules.

Major changes to planning rules

The new rules, which will come into effect by September, mean full planning applications will not be required to demolish and rebuild unused buildings.

“I acquired an old factory building some years ago. It is close to the centre of a bustling market town and it would be the ideal location for some townhouses which the town desperately needs. But because it is more than a century old, the council believe that it is part of the fabric of the town. Most people who live here think it is an ugly old ruin. The new rules will stop the council dragging its feet, and let us get on with building those homes”

This change is expected to reduce pressure on greenfield sites and provide more homes where they are needed, without the red tape.

‘Cutting out unnecessary bureaucracy’

Housing secretary Robert Jenrick, explained: “We are reforming the planning system and cutting out unnecessary bureaucracy to give small business owners the freedom they need to adapt and evolve, and to renew our town centres with new enterprises and more housing.

“These changes will help transform boarded up, unused buildings safely into high-quality homes at the heart of their communities.“

It is not, however, a complete tearing up of the rulebook. Pubs, libraries, village shops and other buildings considered essential to communities will not be covered by these flexibilities. Listed buildings of any shape size or function will continue to be fully protected. But redundant commercial buildings of all kinds, from retail premises that shut up shop years ago to office buildings that have been overtaken by technology and fashions, could be fair game. Outdated factories, workshops and warehouses could all be replaced.

Derelict buildings are dangerous and ugly - now they, or rather the land they stand on -  could be a source of profit for you.

“People want homes, not boarded-up buildings. This means that it will be easier to provide the homes they want, and to get rid of the old structures that actually blight neighbourhoods”

The industry's response

The building industry is cautiously optimistic. Commentators are asking how the new rules will work in practice, and what exactly will be considered to be an ‘unused’ building, and therefore capable of being repurposed or replaced. 

Many welcome it as key to opening up brownfield sites for development, removing obsolete and ugly buildings and replacing them with newbuilds - mainly housing that is in such demand. It should ease the mounting pressure on Green Belt and greenfield sites and promote urban regeneration.

Time is money - the new rules can streamline the entire planning process, helping you get started and get to completion in less time. That means less time and less money is wasted. 

Other changes include requiring local housing plans to be developed and agreed in 30 months, down from the current seven years, to accelerate the categorization process which sees entire areas graded for ‘renewal’, and extending the current exemption of small sites from having to make “section 106” payments – the means by which developers are forced to provide affordable housing.

It looks as though there could be some very rewarding times ahead for builders and developers, as well as the broader economy that depends upon them.

“We’ve had machines standing idle all through the crisis and costing us money. I’m hoping the new rules will see us putting them to work again soon. We’ll be bringing people in off furlough, and giving them real work to do”

The government’s announcement of the new rules could shorten the planning cycle, opening the way for profitable deals and projects. But the need for the right finance for the acquisition and development of property will remain. 

Keeping control of your costs is the first step to profitable property development

At Rangewell, we can help you find the lenders who are able to offer Development Funding.

Development funding

Development Funding is designed for experienced property developers and investors. They can provide a complete solution to the need to fund the purchase of a property needing work, with potential for extension or change of use - or complete demolition, and the funds to carry out the work required. 

The work could be a conversion, an out-of-the ground development, a single newbuild or the development of a major new estate on a major factory site, and can be scaled to the level of work required - from a few hundred thousand pounds into the millions. 

“I saw the potential of some old railway land. There was the land for the sidings and a huge old warehouse building. It was hard to appreciate the size until you looked at the survey, but with well over an acre, there was ample space for a small estate. The council needed assurances that there would be affordable housing provided and all the other usual niggles. But even though we met all their demands, they still have not given us the approval to put up anything larger than a fence.

The new rules will change all that - and thanks to a few calls with Rangewell, I now have the funding I need to start work.”

Development Funding is always arranged on an individual basis and, whatever your project and whatever your funding needs, there will be a solution to help you. At Rangewell we know the steps to take to help you secure it.

The lender will want to see the existing property - if it exists - and see a schedule of works. This is a detailed breakdown of the work and costs involved in the project, together with projected timings. A valuer will comment on whether the intended budget is realistic and if the time scale is achievable. 

Lenders will also want to see evidence of past projects, to ensure that you have the skills and vision to complete the work. 

Costs may be substantially higher than more conventional commercial property funding, but it may be possible to roll up all payments until the property is sold on.

Looking to take advantage of the new planning and development rules? Find out what property funding options are available to you

How it works

Conventional commercial property funding such as mortgages are based on the actual value of a property - which may actually be negative when extensive and difficult demolition is required. If you need to acquire a brownfield site, it may not be possible to secure it with this type of lending, as it may not cover the value of the land itself.

Development Finance, on the other hand, is based on the gross development value (GDV) - the value of the project - once completed. This is also known as the post refurbishment works value.

In other words, with Development Finance, it is your vision and your ability to turn it into reality which is being used as the basis for the funding you receive.

Loans may be available from £100k to £10m. Lenders may consider lending up to 70% of GDV, with funds released in stages. These funds may cover both the property purchase as well as refurbishment works, although funds may also be available for developers who already own a property in need of work.

Terms of up to 18 - 24 months are often available and interest payments may be rolled up in the total loan amount, but, as with all Property Finance, there will also be fees.

However, one of the questions lenders will always ask when reviewing your application for Development Funding is “what about when the project is complete?”

You will need to provide an exit strategy.

If you are simply selling on the complete homes, this will not be an issue. You can pay off the lender in stages as each one is sold.

But what if your development is intended to build your own property portfolio? For example, the new rules might make it simpler to convert an office block from the 1960s into lettable flats or studios. Financial solutions exist to repay short-term Development Funding with a long-term Commercial Mortgage.

“I bought a small council office with a Development Loan. It was in an ideal location, on a hill with views overlooking the town centre. It was solidly built, and with a great deal of work, I had converted it into eight flats. I saw that property values were only going to go up, and I didn't want to sell them on, so I got a Commercial Mortgage for the whole block and let them out instead. I have a steady income coming in, and I created enough equity to fund my next project.”

Commercial Mortgages

If you are planning on keeping the property you developed part of an investment portfolio, a Commercial Mortgage is one of the most common solutions These operate much like a residential mortgage, with a large loan secured on the property itself.

“Rangewell has helped me get development finance in the past, and then when the work was done they helped me get a Commercial Mortgage to take over finance for the long term. 

Naturally, I’m coming back to Rangewell again to help me get funding to take advantage of these new planning regulations.”

Generally, Commercial Mortgage terms last for 15 years or more and, as with a residential mortgage, the premises will be at risk if you are unable to keep up your repayments.

Lenders will look at your business, your accounts and projections to ensure that it has a future and set interest rates based on the level of risk they believe it presents.

The funding you will need to fund development

With the high cost both of property and of this type of building work, getting a full understanding of all the costs will be vital before embarking on a development project.

Not only will you need to know how much you will need to borrow, but you will also need to know how much borrowing will cost.

At Rangewell, we know the property lending sector and can help find the lenders who are ready to help.

Whether you have a straightforward, small-scale funding need for a single property, or require a complicated ‘Jigsaw’ funding plan made up of a combination of financial products, we can work with you to find the answers.

Call us now to get our experts working for you

The Rangewell service is easy to use - and lets you talk to a funding expert to get a solution that is planned around your business needs.

“Buying and doing up property is never as straightforward as you want it to be. There are always problems, whether it is a cost overrun or a problem with the planning. You need to ensure that you have the lowest cost finance you can get because if you pay any more for it, you are just giving your profits away to the banks.

Rangewell know the business - their experts can help find the right deal, and they can tell you about the kind of problems you are likely to face. Other people you talk to tell you about their own product. Rangewell will tell you about everything that is available, and help you see what is best for you, not the lenders.”

Just call us and one of our Business Funding Experts will be able to discuss the options, and work out the most cost-effective ways to provide the funding you want - whatever the challenge your development plans present.

We’ll search the entire lending market to find the most affordable solutions to your funding needs - and, in most cases, our services are absolutely free.

To find out more call Rangewell for an informal discussion on 020 3318 2613 or email [email protected].

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