I hope you’ve all had a lovely week enjoying our new freedoms, I know I have! It is tiring though!
This week I want to talk about what to do when a property doesn’t have the right planning for your plans. This covers a number of areas, and some are easier to overcome than others. There are a few solutions though.
Create a back up option
This is probably the easiest solution to the issue. It works particularly well with conversions to large HMOs (when you’re not in an Article 4 area). Large is classed as everything 7 bedrooms or more and requires a separate planning class. Also semi commercial property that you want to convert to residential and can’t under permitted development. What it means is that you have an ideal scenario (if planning is approved), but also an alternative that could work without any change of planning class.
With the example of an HMO it could work as either a large HMO but also as a 6 bedroom. You will need to asses the refurbishment costs and the rental for both options and ensure that it works either way. Some clients will do the works assuming they will get planning, and then use the extra space for a study or additional communal space if they don’t. Others convert it to a 6 bedroom and then wait for planning to be approved to do an additional extension or garage conversion for example. What you do will very much depend on the layout of the property and the timescales needed for either option.
With commercial property, this can mean keeping the existing commercial if you don’t get planning to convert it to residential. The rental again would need to work either way and you need to be comfortable with either option. Vacant commercial buildings can be difficult, so there needs to be a good demand for the commercial unit for the bridging to work, and then let out before we move it to a term mortgage. We have had other examples of when this scenario works; converting semi detached properties back to a single dwelling, houses to flats and licensed HMOs in Article 4 areas looking to extend to larger properties.
A favourable pre-planning application
There are instances where a back up option just doesn’t work. This could be where the costs or rental potential just don’t work financially for the back up option, or when there isn’t a back up option! This is usually for vacant commercial buildings but there are some other examples too.
In this instance, buying yourself some time to get planning is the ideal solution. This can be done through a conditional exchange or an agreement with the vendor. Where this isn’t possible, achieving a favourable pre application can really help. It really does depend on the overall case and it’s not necessarily a guarantee but it can be enough to complete on your bridging loan. Where a precedent has been set, or there’s been a previous application that has expired then it really does help.
Take advantage of permitted development rights
There are plenty of areas where permitted development rights exist, and the rules have relaxed considerably recently. Knowing what you can and can’t do is so important and can give you an edge over other investors. We can complete without the full approval, as long as we know that is falls under PD rights.
Use alternative funds
The final option is to avoid mortgage finance entirely. This is not something that will work for everyone, but when you have the cash to purchase the property and are willing to take the risk, then this can help. Once planning is granted then we can look at refurbishment finance and can take advantage of the uplift in value that planning has created. There are clearly risks involved with this, so ensure that you have carried out your due diligence, and we are happy to talk about the potential exit routes before you purchase the property.
It’s really important not to get emotionally involved… you are in for a return in investment, keeping your eye on the prize can mean saying No!!
As always, we are happy to chat through any specific deals that you have and talk about your options.