However, investors are being squeezed. Mortgage interest rates are rising and the taxation of property investment is more punitive than it has been in the past. This is before you layer on the cost of meeting regulations, with the requirement to achieve minimum EPC standards the latest rule that landlords need to consider within your outgoings.
So, it’s unsurprising that more investors are investigating ways that they can increase their returns. Specialist investments, such as HMOs and Multi-Unit Freehold Blocks are gaining popularity, and we are seeing a growing number of property investors making use of Permitted Development Rights to boost their earnings.
Permitted Development Rights (PDR) are an automatic grant of planning permission that allows certain building works and changes of use to be carried out on a property without having to make a full planning application. They were initially introduced in 2015, but last year a number of changes were made to encourage the building of more homes in areas with disused commercial property, such as high streets for example.
Whereas existing PDR granted a right to convert offices to residential, these new rules enable the easier conversion of other buildings, such as shops, restaurants, professional services, surgeries, nurseries and other high street uses – opening up a whole range of new opportunities for investors who want to convert and refurbish property either to let out or sell for profit.
In order to qualify for PDR, the property must have been in use under one of the use classes captured by Class E for at least two years prior to the submission of the prior approval application and been vacant for a clear three months.
Prior approval also needs to demonstrate to the local planning authority that the proposal will not have a negative impact on transport and highways, contamination, flood risk, noise, or natural light. However, whereas applying for planning permission can be an uncertain process, PDR provides a right to development given by central government as long as the predefined criteria are met. Consequently, prior approval can easily be achieved in less than two months, whereas planning permission can take eight weeks to many months, and there is greater certainty of the outcome.
Achieving planning permission through PDR is itself presents an opportunity for profit and it can deliver up to a 30% uplift in the value of a site even prior to works starting. It’s easy to see then, why so many investors are choosing this route to add value to their portfolios – and lenders are developing their propositions to meet this growing demand.
Conversion of a commercial property to residential use no longer requires access to development finance and a number of bridging lenders are allowing this type of work
as part of their refurbishment loan proposition, which is making rates more competitive and criteria more accessible. This does remain a specialist area, however, and so it’s important to partner with a broker that has an in-depth knowledge of the available options and long-standing relationships with the lenders that are active in this market. Every property conversion is different and this experience and expertise is vital in ensuring that you are able to make the most of the opportunity presented by PDR.
