There are many different ways of generating profits through property development. From buying under value, to refurbishing, extending and splitting titles.
Profit can also be generated by acquiring planning permission on a plot that is perfect for development. This could be an empty commercial building or brownfield site or an existing residential site where there is further development potential.
Planning gain finance can help with this by funding the purchase of profitable sites prior to full planning being approved.
What is Planning Gain?
If you’re a seasoned investor or property developer, you’ll be familiar with the procedures involved in obtaining planning approval and the rules and restrictions established by the Town and Country Planning Act 1990. If you want to develop on land, make major modifications to its structure, look, or use it as a means of earning revenue, you must obtain planning consent.
The government and local planning authorities (LPAs) can use the Act to ensure that any new property developments, building extensions, changes in use, and other similar projects are carefully controlled and comply with existing planning laws — i.e., that no one evades the regulations to build anything they want.
Planning Permission Gains are the added value to a property or a plot of land resulting from the granting of planning permission on the project. It is a strategy used by experienced investors to increase their returns.
Developers can use the newly granted planning consents to proceed with the build themselves, or it is equally possible to sell the land on (for a profit) now that planning is in place.
The process of obtaining planning approval can take many months, if not years, while you are paying for the finance on your purchase (or the opportunity cost of that capital). Local authorities’ willingness to grant planning permission varies across the country and is significantly influenced by local politics, local and regional plans, as well as agreed development goals.
What is Planning Gain Finance?
Planning gain finance, or pre-planning finance, can help developers to acquire sites that have the potential for further development once additional planning consents are in place.
The finance is essentially a short term bridging loan, which will be used to purchase the site while planning gain is achieved. Due to the flexibility of bridging finance this can also include purchasing uninhabitable properties that would otherwise be unmortgageable.
The loan facility is there to fund the purchase through the planning process. Once the desired consents have been granted the lender will look to have their loan paid back. This could be via sale of the plot or by using development finance to fund the next stage of the project.
Who can apply?
- Limited Companies
- Special Purpose Vehicles (SPV)
- Pension funds
What LTV is available?
The loan to value available varies dramatically from lender to lender and project to project.
It is possible to achieve 70% LTV on the purchase but we have arranged finance at 80% for particularly strong cases.
As with all forms of short term secured loans the lender will look very carefully into how you intend to repay them. This exit strategy forms a very important part of the loan application. For planning gain applications the lender needs to see how you will repay the loan whether your planning application is approved or rejected.
The most common exit strategies for any bridging loan are through sale or refinance. The options could be:
- Refinance to a self-build mortgage
- Refinance to a property development loan
- Refinance to a commercial loan facility as appropriate
- Sale once consent is approved
How can Drake Mortgages help?
Whether your intended strategy is to sell a site once planning is granted, or to build the project yourself we can help arrange a bespoke funding package.
Lenders that provide pre-planning finance will often only deal with a bridging loan broker and don’t accept direct business. As a whole of market broker we have a huge choice of banks, loan companies and specialist lenders to find the right type of bridging loan for you.
Our specialist brokers work with niche lenders that are able to provide:
- Pre-planning development finance from £100K
- Loan to value up to 80%
- Terms of up to 24 months
- Fast decisions
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