Planning Applications and Development Finance: Timing Your Approach

Planning permission and development finance are intrinsically linked, yet many developers treat them as entirely separate processes. In reality, the planning status of your site is the single biggest determinant of the finance terms available to you. A site with full, detailed planning permission and all pre-commencement conditions discharged is the lowest risk proposition for a lender. A site without any planning permission is the highest risk. Everything in between, from outline permission to a resolution to grant subject to a section 106 agreement, represents a different point on the risk spectrum, and lenders price accordingly.

Understanding this relationship allows you to make better decisions about when to approach lenders, how to structure your finance, and how to time your site acquisition relative to the planning process. Getting the timing wrong can be expensive. Approach too early, before planning is sufficiently advanced, and you may only be offered expensive short-term bridging finance rather than a full development facility. Approach too late, after you have already committed to purchasing the site, and you lose negotiating flexibility if the finance terms are worse than expected.

In our experience, the optimal approach is to begin conversations with your broker at the pre-application stage of planning, submit a formal finance application once you have a resolution to grant or full planning permission, and target financial close to coincide with the discharge of pre-commencement conditions and appointment of your contractor. This sequencing allows each process to inform the others and ensures you are not paying for finance before you need it or committing to a site before you have confidence in the funding.

Before any planning application has been submitted, your finance options are limited to land acquisition bridging loans or speculative site purchase facilities. These products fund the purchase of the land only, with no construction element, and are priced to reflect the risk that planning may not be granted. Interest rates typically range from 0.75% to 1.2% monthly, with terms of 12 to 18 months. The lender is essentially betting that you will secure planning permission within that timeframe and either refinance into a development facility or sell the site at a profit. Loan-to-value ratios for pre-planning land purchases rarely exceed 60-65% of the current land value, not the hoped-for post-planning value.

Once a planning application has been submitted, some specialist lenders will consider a conditional facility offer. This means they will issue indicative terms for a development finance package, conditional on planning permission being granted substantially in accordance with the submitted application. This conditional offer does not commit the lender, but it gives you confidence that finance will be available and at what approximate cost. We use conditional offers extensively to help clients bid on sites with confidence, knowing that the finance structure is understood even before planning is determined.

With full planning permission granted, the full range of development finance products becomes available. This is when you can access the most competitive rates, typically starting from 6.5% per annum for experienced developers with strong schemes, and the highest leverage, up to 65-70% of GDV through a combination of senior debt and mezzanine finance. The key distinction at this stage is whether pre-commencement conditions have been discharged. Lenders will not release the first construction drawdown until all pre-commencement conditions are satisfied, so factor the time needed for condition discharge into your programme and finance timeline.

Pre-application advice from the local planning authority is not just a planning tool; it is a valuable piece of evidence in your finance application. A positive pre-application response indicates that the principle of development is acceptable to the planning authority and that your proposed scheme is broadly aligned with local planning policy. While pre-application advice is not binding, lenders take it into account when assessing planning risk. A scheme that has received positive pre-application feedback is viewed more favourably than one that has been submitted without any prior engagement with the planning authority.

The cost of pre-application advice varies between local authorities but typically ranges from £250 for householder developments to £2,000 to £5,000 for major applications involving ten or more residential units. This is a modest investment relative to the total project cost and the potential impact on your finance terms. We have seen cases where positive pre-application advice has enabled developers to secure conditional finance offers up to six months before planning permission was formally granted, giving them a significant advantage in competitive site acquisitions.

When including pre-application advice in your finance application, present it alongside your planning consultant’s assessment of the likelihood of securing permission. If the pre-application response identified issues that you have subsequently addressed in your formal application, explain the changes you have made. This narrative approach helps the lender understand the planning journey and gives them confidence that the risks have been identified and managed. For developers working in their first development project, demonstrating thorough planning preparation is particularly important for building lender confidence.

Section 106 obligations and the Community Infrastructure Levy represent significant financial commitments that must be accounted for in both your development appraisal and your finance application. Section 106 agreements are negotiated between the developer and the local planning authority and can include affordable housing contributions, financial payments toward local infrastructure, provision of public open space, and highway improvements. CIL is a fixed-rate charge levied on new development based on floor area, with rates varying by local authority and use class.

For development finance purposes, section 106 costs and CIL payments must be clearly identified in your appraisal as project costs. Lenders will verify these costs against the planning permission and the relevant CIL charging schedule. The timing of payments matters too. CIL is typically payable within 60 days of commencement unless you apply for instalment payments, which most local authorities offer for larger sums. Section 106 financial contributions may be triggered at different stages, for example upon commencement, upon first occupation, or upon completion. These cash flow obligations need to be reflected in your drawdown schedule.

On a scheme with a GDV of £4,000,000, section 106 and CIL costs can easily total £150,000 to £400,000 depending on the local authority and the nature of the obligations. In some London boroughs, affordable housing requirements can fundamentally alter the viability of a scheme if not properly accounted for from the outset. We always advise clients to establish their section 106 and CIL liability before finalising their development appraisal, as these costs directly affect the profit margin and, by extension, the terms available from lenders. Contact us through our deal room to discuss how planning obligations affect your specific scheme.

Permitted development rights allow certain types of development to proceed without a full planning application, subject to a prior approval process. The most common route used by property developers is Class MA, which permits the change of use from commercial, business, and service use to residential. Prior approval applications are simpler and faster than full planning applications, typically determined within 56 days, and focus on a limited range of considerations including transport, contamination, flooding, noise, natural light, and the impact on the provision of commercial services.

From a development finance perspective, prior approval under permitted development is treated similarly to full planning permission by most lenders. The key difference is that permitted development conversions often involve existing commercial buildings that may have structural issues, asbestos, or other complications that are not always apparent from an initial inspection. Lenders will typically require a more detailed building survey for PD conversion projects than for new-build schemes, and some will insist on an asbestos report before committing to the facility. Build costs for PD conversions vary widely, from £80 to £150 per square foot for straightforward office-to-residential schemes, up to £150 to £220 per square foot for more complex conversions involving industrial buildings.

The advantage of the PD route is speed and certainty. If your building qualifies and the prior approval considerations are addressed, you can have a consent within two months rather than the four to twelve months a full planning application might take. This makes PD conversions attractive to lenders because the planning risk is minimal. We have arranged development finance for numerous commercial-to-residential conversion schemes across the South East, and the combination of quick planning consent and strong residential demand makes these projects particularly fundable.

For straightforward residential developments on allocated housing land, the optimal strategy is to submit your planning application, begin engaging with lenders once the application is validated and any initial consultee responses are positive, and target a formal finance application within two to four weeks of receiving the planning decision. This typically allows you to achieve financial close within eight to twelve weeks of planning approval, which is fast enough to satisfy most land purchase completion deadlines.

For more complex schemes, such as large-scale developments requiring an environmental impact assessment, schemes in conservation areas or affecting listed buildings, or developments in areas without an adopted local plan, the planning timeline is inherently uncertain. In these cases, we recommend securing a conditional bridge for the land acquisition and beginning the development finance conversation early, even if formal application is not possible until planning is determined. This ensures you have a clear finance route mapped out and can move quickly once planning is resolved.

For auction purchases where the site already has planning permission, the timeline is compressed and there is no luxury of sequencing. You typically have 28 days to complete the purchase, which is too short for a development finance facility. The standard approach is to use a bridging loan to complete the acquisition, then refinance into development finance once the full application has been processed. We regularly arrange back-to-back bridging and development finance facilities for auction purchasers, and having both facilities agreed in principle before bidding is the key to executing this strategy successfully.

If planning permission is refused after you have already acquired the site with bridging finance, you need a contingency plan. Your options include appealing the decision, submitting a revised application addressing the reasons for refusal, or selling the site. The bridging loan will continue to accrue interest during this period, so time is of the essence. A planning appeal typically takes six to twelve months for a written representations appeal or twelve to eighteen months for a hearing or inquiry, during which your borrowing costs continue to mount. This scenario underscores the importance of thorough planning due diligence before committing to a site purchase.

If planning permission is granted but with material amendments to your submitted scheme, such as a reduction in the number of units or additional affordable housing requirements, you will need to revise your development appraisal accordingly. Any existing conditional finance offer will need to be reassessed against the amended scheme. A reduction from twelve units to ten, for example, directly reduces your GDV and may push the loan-to-GDV ratio above the lender’s maximum, requiring either additional equity or a restructured facility. We always advise clients to model a conservative scenario in their initial appraisal that assumes some reduction from the planning application, so the financial impact of minor amendments is manageable.

The key lesson is that planning risk should be reflected in your overall project budget and finance structure. If you are acquiring a site without planning permission, your equity contribution should be higher to absorb the additional risk. If you are relying on a specific planning outcome to make the scheme viable, consider whether that reliance is appropriate or whether a more conservative scheme with greater certainty of planning approval might deliver a better risk-adjusted return. In our experience, the most successful developers are those who treat planning as a risk to be managed rather than an outcome to be assumed.