Permitted Development Finance

Before prior approval is granted, a lender is funding a commercial building with a residential plan. Leverage is set against the building's value in its current use, typically through a bridging loan, and the conversion works are not funded.

Once you hold the decision notice, the scheme can be refinanced or funded from the outset on its GDV, with the works released in stages. The council has 56 days from receiving a prior approval application to determine it, so many buyers exchange conditionally on approval rather than bridge the gap.

A lender's solicitor will check the building qualifies before the facility completes. Two limits that used to catch schemes out, a three-month vacancy requirement and a 1,500 square metre floorspace cap, were both removed on 5 March 2024. The rules that remain are below.

Our Class MA lender criteria guide covers the full requirements and the prior approval process in more depth.

• The building must have been in Class E use for a continuous period of at least two years before the prior approval application.
• Excluded: listed buildings, scheduled monuments, SSSIs, National Parks, areas of outstanding natural beauty, the Broads and World Heritage Sites.
• Prior approval matters include transport, contamination, flood risk, noise from nearby commercial premises, natural light to all habitable rooms and, for buildings of 18 metres or seven storeys and above, fire safety.
• Every new home must meet the Nationally Described Space Standard.
• The conversion must be completed within three years of the prior approval date.
• An Article 4 direction can remove Class MA rights in a defined area, in which case full planning permission is needed.

Lenders do not all treat a Class MA scheme the same way. A sound concrete-frame office that needs partitions, services and windows can be funded as heavy refurbishment, sometimes with a simpler drawdown process. A scheme involving new floors, structural openings or extensions is treated as development.

The classification affects pricing, how much of the works are funded and how closely the monitoring surveyor tracks the build. Our guide to light vs heavy refurbishment finance explains where the line usually falls.

Permitted development finance is a branch of property development finance, and most PD projects use it alongside other property finance. Property developers commonly buy the building with commercial bridging, move onto a development facility once prior approval is granted, and repay from flat sales or a refinance. Each stage has its own lender appetite and pricing.

Lenders want a clear exit strategy before they commit. Selling the flats is the usual route. Keeping them to let means refinancing onto buy-to-let mortgages, and a ground floor kept in commercial use can move onto one of the commercial mortgages available for let property.

• Purchase before prior approval: bridging loans secured on the building's current commercial value.
• Conversion works: development finance or heavy refurbishment finance released in stages against the monitoring surveyor's reports.
• Equity gap: mezzanine finance or a joint venture partner where senior debt falls short.
• Completion: flat sales, a buy-to-let refinance, or development exit finance while sales complete.

Your track record shapes the terms more than almost anything else on a PD conversion. Property developers with completed conversions behind them get higher leverage and lower pricing. First-time property developers can still be funded, but expect lenders to look harder at the contractor, the project manager and the building survey.

Some lenders are more flexible than others on experience, building condition and unit sizes, and their appetite changes over time. With broker support, you see more of the market than a direct approach allows. Specialist development finance brokers know which lenders are active for PD schemes and present the project to the ones most likely to say yes. Our page on finance for first-time developers covers how to strengthen a thin CV.

Development finance rates on a Class MA project start from around 6.5% a year, but few schemes price at the bottom of the range. The key factors are your track record, the leverage you ask for, the building's condition and the depth of resale evidence for converted flats nearby.

Most lenders apply similar eligibility criteria for a property development loan on a PD scheme: a granted prior approval, a costed schedule of works, a credible exit and an equity contribution, typically around 15-20% of total costs. Some also want flats comfortably above the minimum space standard, because buyers' mortgage lenders can be cautious about very small units.

If a development loan is not the right fit, your other development finance options include heavy refurbishment finance for lighter works, commercial bridging for a quick purchase, or a commercial mortgage if you keep the building in its current use while you plan the conversion.

Permitted development removes the need for a planning application. It does not relax Building Regulations. A change of use to flats must meet the requirements on fire safety, sound insulation between units, ventilation and energy efficiency, and that is where many conversion budgets slip.

Older offices often need new risers, compartmentation between flats and upgraded windows. Get a building surveyor's view before you set your budget, and test the numbers in our office to residential calculator.