New planning laws and what they could mean to you
A guide for commercial property owners
The Government has announced radical changes to England’s planning system which will make it easier for developers to build new homes and commercial buildings.
But what will this mean to you - and how will you find the funding you need to take advantage of the opportunities that this presents?
The UK has a growing population – and a growing housing shortage as a result. Building new homes is the obvious answer, but suitable plots of land are becoming scarce and are rarely in the key locations - central, with easy access to amenities, shops, schools and transport links - that people actually want to live in. With the UK economy in turmoil following Covid, the government is looking at ways to stimulate activity - especially the building market. In his ‘Build, Build, Build’ speech, Boris Johnson set out a number of radical planning reforms, which included some major changes to the planning rules.
Why are changes necessary?
Local authorities have a duty of stewardship to the communities they serve. The problem is that there is a resistance to building on greenfield sites, and brownfield sites – where older buildings have been torn down – are becoming hard to find.
Many local authorities are seen to be against any development whatsoever, preferring to face the frustrations and appeals of developers than the wrath of outraged residents.
The net result is that planning permission is often denied and that economic recovery may be being hampered as a result.
Now, under the government's new rules, councils will be blocked from denying planning permission in areas designated for growth in a bid to speed up development.
Where can you build?
The biggest change to the planning regulations will see land dividing up into three categories – “growth”, “renewal” and “protected”.
On land earmarked for growth, new homes, schools and hospitals will be allowed to be built automatically, with councils unable to veto appropriate development. In “renewal” zones, largely urban and brownfield sites, proposals would automatically be given “permission in principle”, subject to basic checks. Green belt and areas of outstanding natural beauty would be protected, but councils will be also be told to push through plans on land marked for renewal.
Protected land will include green belts and areas of natural beauty, where new building plans will still not be allowed. But the proposed changes don’t stop there.
The changes don't stop there
Change of use will now be much easier. Buildings are to be allowed to change from commercial use to residential without the need for planning permission. There could be plenty of opportunities to convert vacant shops into homes, or to demolish redundant retail property and put up homes in their place – without the long and drawn-out process of enquiries and panning committee oversight that is currently frustrating the ambitions of many in the sector. Housebuilders will be able to demolish existing vacant residential and commercial buildings and build new homes in their place, also without requiring planning consent – although naturally, restrictions on listed properties will remain.
And it is not just large-scale developers who will benefit from these rules. Homeowners will be able to add extensions and stories above existing floors under a new a fast-track process, assuming their neighbours agree and their plans are structurally sound.
It is all part of the government’s drive to kick-start the economy. Other changes include requiring local housing plans to be developed and agreed in 30 months, down from the current seven years, to accelerate the categorisation process, 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.
So what has changed?
The government’s announcement of the new Permitted Development Right (PDR) could shorten the planning cycle, making a whole new class of buildings suitable for airspace development – and opening the way for profitable deals and projects.
This means that the development cycle can be rapid. With existing services on-site and ready to be tapped into, homes may be built offsite using modular construction and arrive 95% complete before being installed. Modular is one of the most exciting innovations across property development and is favoured by the Government as one of the keys to addressing delivery shortages and improving efficiency – and by developers who want to reach the profit stage quickly. It is a much quicker and less disruptive means of housing delivery given the significant percentage of work that is carried out off-site. It means that there is an exciting new opportunity for developers – whether or not you currently own suitable property.
What can you build?
The new planning rules could see a boom in building in many sectors.
The relaxation of rules about extending upwards could see luxury penthouses in desirable locations, where a view across the city is matched by a short walk to the office. Affordable housing atop existing blocks is also now possible.
But, lucrative though these may be, the main activity is likely to be newbuild on green and brownfield sites.
Affordable homes, from studios to family flats that can take full advantage of existing infrastructure, are a potential moneyspinner and, potentially, part of the solution to the housing crisis. They could certainly be a chance for you to build profits as well as homes.
If you already own a suitable property
The relaxation in development rights means that property owners - and even individual homeowners - may be able to add two storeys to a detached property under permitted development rights without needing additional planning permission, to convert existing property – such as shops and office buildings – into residential accommodation.
It may also be easier to build on land that you have banked.
This could, of course, mean that property you own and which has potential may suddenly be much more attractive to a developer to buy - but if you decide to take on the project yourself, you may need Development Funding to help pay for the work required.
"I’ve owned a property in an outer London Borough for seven years now which used to be a telephone exchange. I originally wanted to turn it into flats. The council wanted to find an alternative commercial use for it - which was unlikely - nobody needs a telephone exchange. Now the changes to the planning rules might mean that my original plan could be back on.”
If you don’t already own the property
The relaxation of development rules has changed the economics of development and will make many property deals that previously would not have been worthwhile into potentially valuable opportunities.
“There are plenty of shops standing empty in the high streets round my way. Many of them were actually built as homes, a century or more ago. Putting them back would be a lot of work, but with a bit of vision, you can see how it could be done. Homes that people want, good central position - but there is no point buying them and hoping the council will cooperate because, in their minds, once a change of use has been agreed, they won’t change it back.
I’m hoping the new rules might make buying those empty shops and doing the work worthwhile.”
Funding your plans
At Rangewell, we can help you find the lenders who are able to offer Development Funding.
Development Funding, or development mortgages, allow experienced property developers and investors to fund both the purchase of a property needing work or with potential for extension, and the funds to carry out the work required.
The work can be an out-of-the ground development, a single newbuild or the development of a major new estate. It may include conversion of a single building into multiple units, such as turning a redundant office block into self-contained flats.
This is always arranged on an individual basis and, whatever your project and whatever your funding needs, there will be a funding solution to help you bring them into reality.
The lender will want to see the existing property, if it already exists, and see a schedule of works - 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 timescale 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.
“You know that buying the property is the easy part. Getting the work done is always more costly than you expect, which is why you need an expert to ensure that you get the funding that you actually need.”
Costs may be substantially higher than more conventional Commercial Mortgages, but it may be possible to roll up all payments until the property is sold on.
Development Finance 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.
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.
However, as with all Property Finance, there will also be fees:
- Arrangement fees. These are charged by the lender for arranging the loan and are typically 1.5% to 2% of the total loan amount.
- Exit fees. Not all lenders apply exit fees - those that do may charge a percentage of the loan amount or, sometimes, the gross development value.
- Valuation fees. Lenders will instruct a surveyor to value the property both before and post-refurbishment works. The scale of these fees will depend on the size of the project.
Other types of property funding:
A Commercial Mortgage is one of the most common forms of finance used to buy commercial property and could help you acquire commercial or residential block suitable for airspace development. These operate much like a residential mortgage, with a large loan secured on the property itself.
“Rangewell 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 going 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.
However, unlike a residential mortgage, the rates for a Commercial Mortgage are arranged on an individual basis. 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.
Again, there will be valuation, arrangement and legal fees to consider. There can also be additional costs associated with a Commercial Mortgage for the services of professional advisors. Because of the legal and administrative costs, it is uneconomical to borrow less than £50,000 with a Commercial Mortgage, and some lenders have a minimum of £75,000, but there is no set upper limit.
A business Bridging Loan is a short-term loan secured against property. The property can be residential, such as buy-to-let flats, or commercial, such as offices, factories or warehouses. Bridging Loans are usually designed to be repaid quickly, either by the sale of the property when the work is done or by another finance product designed for the long term, such as a mortgage, and are often used to fund property purchases. The loan can be as short as one day and run up to a maximum of 12 months. Loan amounts start at around £25,000, and there is no maximum.
“I bought a property - a pair of cottages - at auction with a bridging loan and did the work on them. Getting them habitable took most of my spare time and all of my spare cash. But as I didn’t need to make any payments on the bridge finance, I was able to bring the project off. I sold for a very worthwhile profit, paid off the bank, and had a very nice deposit for my next project.”
Lenders offering Bridging Finance will carry out detailed checks and apply conservative lending criteria but are able to make rapid decisions because they can work without the bureaucracy that slows down many traditional lenders.
However, it is worth noting that short-term finance is always more expensive than long-term lending. The costs of Bridging Finance can be relatively high but, in some cases, all fees and interest can be rolled up into the loan, which can be settled with a single repayment. A Bridging Loan could provide the funding for an Airspace development
If you are using a Bridging Loan as a short-term solution for a property purchase, it can often be paid off by a solution designed for the longer term, such as a Commercial Mortgage.
The funding you will need
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.
Not only is it essential to understand how much you will need to borrow, but you will also need to know how much it will cost to borrow the finance you need. A fraction of a percentage point can make a substantial difference to what you actually pay, and many lenders are simply not able to provide any kind of funding for development.
“Property is expensive to buy and to do up. You know that before you start but you also need to know the best way to cover the costs that you just can’t avoid. At Rangewell they work to find you the answers. If the money costs you less to borrow, you come out of it all with more cash left as profit.”
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.
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.
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 business plans present.