View more on these topics

Bridging Watch: Permitted development rights providing a boon for bridging loans

Chris Fairfax

With permitted development rights providing a vital boost
to UK housebuilding, more development finance is needed

Permitted development rights are described officially as “rights to make certain changes to a building without the need to apply for planning permission. These derive from general planning permission granted by Parliament rather than from permission granted by the local planning authority”.

The aim of PDR is to support growth in the economy, enable businesses to make the best use of their premises and build more homes. Launched in 2013 and known as ‘Temporary PDR’, the legislation allows increased change of use and size limits for the depth of single-storey domestic extensions until May 2016, assuming local authorities do not adopt Article 4 powers to remove PDR and the site does not sit in a conservation area or area of outstanding natural beauty.

You have only to arrive in London by train to witness the impact of PDR: countless derelict or vacant office blocks are being redeveloped to provide modern, stylish apartments in the centre of the capital. Indeed, between April 2014 and June 2015 more than 4,000 conversions were approved.

We have assisted many developers in taking advantage of the relaxed planning laws, although, during the summer of 2015, we experienced a reluctance from development funders to support such schemes. This was due to concerns that conversions would not be completed by the required May 2016 deadline. However, confirmation in October that ‘Temporary PDR’ status would be extended indefinitely has reinvigorated this market, creating significant opportunity for specialist lenders.

Exemptions

Certain areas are exempt from the office-to-residential PDR, including the City of London, The London Central Activities Zone, areas in the boroughs of Stevenage and Ashford, areas in Sevenoaks (Kent) and east Hampshire, and Manchester city centre. These areas have until May 2019 to make an Article 4 direction if they wish to continue determining planning applications for change of use. A big opportunity exists if they choose not to adopt Article 4, potentially opening a huge number of vacant offices to residential redevelopment.

With such a large drive to increase building, more development finance is needed. Traditional sources of development finance will no doubt be buoyed by PDR but bridging finance lenders engaged in development will also benefit greatly.

Bridging lenders that provide loans for new-build or conversion tend to be priced more highly but offer valuable advantages: higher loan-to-cost, higher loan-to-gross development value, less experience needed, schemes outside the South-east and smaller schemes are the reasons most often leading to placement.

While high-street development lenders tend to offer 60 per cent LTC, specialist banks offer up to 60 per cent GDV and senior-stretch banks may reach 65 per cent GDV, our panel of bridging lenders involved in development or conversion will lend up to 90 per cent LTC, meaning the developer may be able to contribute 10 per cent. In some instances we can raise 100 per cent funding where equity in the scheme is given or additional security is available.

This type of low-contribution funding is particularly useful for developers involved in multiple schemes that are trying to manage cashflow or maximise return on equity.

The other great advantage is speed. Like bridging finance, this type of lender is built for providing funds quickly, which is sometimes required where an opportunity is available to the open market.

The Government has targeted nearly one million homes to be built during this parliamentary term. Relaxing planning laws will help but it is just as important that builders have access to capital. I foresee ever-increasing involvement from specialist funders in seeking to meet annual output targets of 240,000 units.

Recommended

Richard-Adams-700.jpg

Richard Adams: The B2L sector will look very different in 2016

Half-way through the year, if you had pressed me on what was likely to be the stellar mortgage market sector, come the end of 2015, I would probably have been drawn towards buy-to-let. At the time, it appeared that the private rental sector had dodged a bullet with the return of a Conservative Government and […]

Money-Cash-20-Note-Currency-GBP-700x450.jpg

Borrowers increasingly taking out fixed rates

The proportion of loans taken out at fixed rates is increasing as borrowers look to lock in before base rates rises. Figures published jointly by the Bank of England and the FCA today show 80.7 per cent of gross advances in Q3 were fixed rates. This is up from 78.9 per cent in the previous […]

Newcastle BS appoints head of mortgage distribution

Newcastle has appointed Steve Carruthers to the newly created role of head of mortgage distribution. Carruthers joins from Aldermore where he was head of sales. Prior to this he worked in a variety of roles within the RBS group. He says: “I’m delighted to join Newcastle Building Society at an exciting time for the company […]

FCA interior logo 620x430

‘Maximum assistance, minimum interference’: FCA lays bare Financial Ltd risk failings

Former Financial Ltd boss Charlie Palmer built an advice network that treated advisers as the end customer and failed to heed warnings about potential suitability risks, the FCA says. The regulator has today issued a decision notice against Palmer for failing to ensure appointed representatives gave suitable advice to around 40,000 clients. It also wants […]

India budget: BJP focuses on growth

By Kunal Desai, Head of Indian Equities

With markets kept open on Saturday, finance minister Arun Jaitley delivered a promising budget focused on growth and decentralisation. While many complained about a six-day working week, there was much to be pleased about and the markets rallied in the afternoon to finish in the green.

Newsletter

News and expert analysis straight to your inbox

Sign up