Planning permission through PDR is a great opportunity for investors to make profit
The demand for housing continues to exceed supply and there is nothing to suggest that this position will change soon. Real property remains a great opportunity for investors to earn both income and capital gains.
However, investor margins are being squeezed in several ways, at the highest level:
- Mortgage interest rates are on the rise after years of being at an all-time low.
- Government fiscal policy has made taxation on property investment more punitive than it has been in the past.
- New measures by the UK Government designed to improve the quality of rental property are another layer of cost for the Landlord.
There is now a requirement that unless exempt, a rental property must be able to achieve an EPC rating of E or above.
Going forward, the minimum EPC rating for rental property is believed to be increasing to a “C”, which many pundits believe is a bridge too far, as it may affect the availability of houses available to rent as Landlords decide to sell up, rather than pay up.
Unsurprisingly, property investors are looking at other less mainstream ways of making money out of property such as:
Landlords looking at more specialist property investments, such as Multi Unit Freehold Blocks, or HMOs, which produce a higher rental yield than single units.
Investors are also taking advantage of new Permitted Development Rights. These new rights were originally introduced in 2015, but in 2021 several changes were introduced to encourage the development of disused commercial property, under the class E category, into dwelling houses.
By taking advantage of these rights’ investor/developers can build in additional value, either to sell on for profit or retain as a long-term rental property.
Permitted Development Rights (PDR) are grant of planning permission which allows change of use and or, certain building works to be carried out as of right. Certain changes of use or developments, however, require “prior approval” from the local authority. Basically, this means the developer needs to seek approval from the local authority before work begins.
Prior approval sounds like a quasi-planning application, but it is not so.
The applicant is required to demonstrate to the local planning authority that the proposal will not have a negative impact on highways, transport, flood risk, noise or right to light. Full planning permission can be a difficult lengthy process, involving planning consultants, appeals etc, prior approval can easily be achieved in less than two months with a greater certainty of a positive outcome.
Whereas the rules introduced in 2015 granted permitted development rights to convert offices to residential property, the latest rules enable the easier conversion of other buildings, such as shops, restaurants, Banks, Doctors’ Surgeries, or other high street premises, which has opened a new range of new opportunities for investors – when one door closes, another opens, so to speak.
To qualify for Permitted Development Rights under the new rules, the target property must have been in use under one of the use classes, under the Class E category for at least two years prior to the submission of the prior approval application and must been vacant for three months.
Planning permission through PDR is a great opportunity for investors to make profit and it can deliver a planning uplift in the value of a site before any work has commenced. You can see an example of how a development bridge works in practice here.
Development remains a specialist area of activity but handled carefully can yield good profits.
Finance for such projects doesn’t have to be development finance, which is often only available to the experienced. Bridging finance of the heavy refurbishment type is now available for PDR property conversions.
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Mark has worked in financial services since 1995, initially as a Financial Adviser and then a Compliance Officer.
He has been a Senior Holiday Let Mortgage specialist at Drake Mortgages since 2001. He is often quoted on lenders websites and can be found in the press, talking about holiday let and available finance.
