As a specialist lender, the government’s decision to establish Permitted Development Rights (PDR) as a permanent scheme marked an exciting development for the UK’s property market. This was a clear sign of government confidence in the scheme, which allows changes to be made to buildings without needing planning permission. But what does this mean for specialist finance, who stands to benefit and what can the industry gain?
The impact of PDR has been seen across the UK. Major cities ranging from Manchester to Cambridge have enjoyed a significant uptick in development activity as a result. Greater flexibility provided by reduced planning approval has helped to ease the shortage of housing space, whilst also empowering developers to convert loss making commercial space into profitable residential units.
Across the UK’s densely populated urban areas, space is at a premium and the conversion of vacant space is desperately needed. This also has significant implications for the UK’s housing shortage. Between 2015 to 2018, over 42,000 housing units in England were converted from offices to residential units. We expect this momentum to continue, especially with the addition of hot-food takeaway restaurants to the PDR framework, creating further conversion opportunities. Here, PDR has had a positive impact by creating more flexibility for developers to transform spaces.
There have also been positive changes for development timescales and costs. The PDR changes mean that developers can now achieve quicker timescales from identifying a site, through to the eventual completion of the conversion. Similarly, developers can save costs with less onerous planning requirements. For example, in the absence of planning permission, there’s no obligation to make a Section 106 contribution that is usually attached to mitigate the impact of new developments on the local community and infrastructure.
However, this increased flexibility has sparked concerns about build quality, especially from local councils. The quantity over quality debate in property is well versed but it is important that PDR is used for the development of high quality and well utilised buildings.
So, what does this mean for specialist finance and how can specialist finance firms leverage these changes? Specialist finance providers are critical in supporting developers of all sizes. Our industry is in a position to work closely with developers to assess the quality and design of various premises, in addition to helping to judge the appropriateness of the location of a converted unit, before granting funding. Whilst specialist finance lenders are interested in the ‘worthiness’ of the potential loan, the criterion also addresses quality concerns such as those highlighted by some local councils.
In the current climate and with this PDR initiative, the specialist finance industry is becoming increasingly critical. High street banks are becoming more selective in their real estate propositions, with specialist finance providers primed to support projects throughout the debt size. In addition, Houses in Multiple Occupation (HMOs) conversions with rear extensions, large offices and residential conversions can be considered with costs fully funded, often with bridging finance solutions as a suitable product.
The newly established permanence of PDR and wider industry changes stands to create benefits for developers, with specialist lenders primed to help them capitalise on these opportunities.