Under permitted development rights your client can do a range of things to their property — such as extend the property — but without the need to seek planning permission. This removes time delays and complications for your clients, making it easier for them to add value to their property.
There are, however, some restrictions. For example, the extension cannot exceed eight metres from the main building for a detached property and six metres for other property types, based on the property as it stood at 1948.
The conversion of non-residential dwellings — for example, offices into residential dwellings — can also be classed as permitted development.
Why are property investors taking advantage?
With mounting pressure on income streams — due to the raft of BTL changes — investors are seeking other ways to continue to make money from property. For example, extending a property to add another bedroom could help the investor convert a property into a successful HMO, increasing both the property value and the rental income yield.
We have also seen clients purchase freehold property, consisting of shops on the ground floor and an office above. The investors use permitted development rights to convert the office into residential flats and will then often create long leases on each of the flats to refinance or sell on at a profit.
It is important that advisers consider the most suitable way to finance these types of transactions, which will vary dependent on the plans for the property.
Plans for a simple extension to increase the property size may be acceptable for standard BTL lenders, but plans to extend and convert the property into a HMO may not be acceptable, and bridging finance in the interim may need to be considered instead.
Bridging finance is often a suitable product for these types of transaction and prices have been falling with lenders such as Masthaven reducing rates to just 0.48% and Octopus offering 75% LTV at 0.6%.
It is worth advisers being mindful of complicated developments that may need specialist development funding. This may be the case, for example, when a roof is taken off to create another floor on the property. More development funders have entered the market recently, again offering attractive terms.
One issue is the guarantee of the value of the property at the end of the project. If a property is reliant on the end value to raise capital for the next project, the uncertainty of valuations in the current market could cause an issue. It is good, therefore, to see that Precise has extended its refurbishment BTL product to allow permitted development projects.
I am sure that — with permitted development rights being made permanent — more lenders will be looking to provide product innovation in this area, so watch this space.