Planning permission sits at the heart of almost every property development decision in the UK. For lenders considering whether to fund a project, the planning position tells them a great deal about risk, timeline and the likelihood of a profitable outcome. Getting the planning side right before approaching a lender is one of the most effective things a borrower can do to smooth the funding process.
This guide explains the different types of planning permission, how each one affects lending decisions, what lenders specifically look for when assessing a planning file and how borrowers can put themselves in the strongest position when seeking development finance.
Why Planning Permission Matters to Lenders
Lenders are in the business of managing risk. When they fund a development project, they need confidence that the borrower can deliver the finished scheme and repay the loan. Planning permission is one of the biggest variables in that equation.
A project with full planning approval carries far less risk than one that still needs consent. If a borrower defaults, the lender may need to step in and either complete the development or sell the site. A site with planning permission already in place is far more marketable and valuable than one without it. The planning status therefore directly affects the security the lender holds.
Beyond the security angle, planning permission also governs what can actually be built. The number of units, the gross internal area, the permitted use class and any conditions attached to the consent all shape the project’s viability. Lenders will model their lending against the scheme that planning allows, not the scheme the borrower hopes to build.
For borrowers unfamiliar with how development lending works, our development finance guide covers the fundamentals in detail.
Types of Planning Permission
The UK planning system has several categories of consent, and lenders treat each one differently. Understanding the distinctions helps borrowers anticipate how a lender will view their project.
Full Planning Permission
Full planning permission is the most comprehensive form of consent. It grants approval for a specific development based on detailed drawings and supporting documents. Full permission typically lasts three years from the date of approval, during which time the development must commence.
From a lender’s perspective, full planning is the gold standard. It confirms exactly what can be built, under what conditions and within what parameters. When a borrower presents a project with full planning already granted, the lender can assess the scheme with a high degree of certainty.
Most mainstream development finance lenders require full planning permission to be in place before they will release funds. This is particularly true for ground-up developments where the entire project depends on the approved scheme being deliverable.
Outline Planning Permission
Outline planning establishes the principle that a site is suitable for development without going into the fine detail. It confirms that the local planning authority accepts the general idea of development on the site but leaves the specifics to be resolved through reserved matters applications.
Reserved matters typically cover access, appearance, landscaping, layout and scale. These must be submitted and approved within three years of the outline consent, and the development must then begin within two years of the reserved matters approval.
Lenders are cautious with outline planning. While it demonstrates that the principle of development is accepted, there is still meaningful risk that the reserved matters may not be approved as the borrower expects. The final scheme could end up smaller, less profitable or subject to conditions that change the economics of the project.
Some specialist lenders will fund against outline planning, but borrowers should expect higher rates, lower loan-to-value ratios and additional conditions compared to projects with full consent.
Permitted Development Rights
Permitted development rights allow certain types of work to proceed without the need for a formal planning application. These rights are granted by the government through the General Permitted Development Order and cover a range of activities from minor household extensions to larger commercial-to-residential conversions.
For lenders, permitted development can be straightforward provided the borrower can demonstrate that the proposed works genuinely fall within permitted development rights. This usually means obtaining a lawful development certificate from the local planning authority, which formally confirms that the proposed works are permitted.
One of the most common uses of permitted development in the lending context is office-to-residential conversions under Class O (now Class MA). These conversions have been popular with developers and lenders alike because they bypass the full planning process while delivering residential units. However, lenders will still want to see evidence that the conversion meets all the relevant conditions and criteria.
Projects relying on permitted development rights are often well suited to bridging loans where the conversion can be completed within a short timeframe.
Change of Use
A change of use application is required when a property is being converted from one use class to another and the change does not fall within permitted development. For example, converting a retail unit into a restaurant or a warehouse into residential flats may require a formal change of use application.
Lenders assess change of use applications carefully because the viability of the project depends entirely on the new use being approved. If planning is refused, the borrower is left with a property in its original use class, which may not support the loan amount.
The strength of a change of use application depends on factors such as local planning policy, the compatibility of the proposed use with the surrounding area and whether there is demand for the new use. Lenders will want to understand these factors before committing funds. For properties involving mixed commercial and residential use, our guide to bridging loans for mixed-use properties explores the lending considerations.
Prior Approval
Prior approval is a process that applies to certain types of permitted development. Unlike a full planning application, prior approval only requires the local authority to consider specific matters such as transport, flooding, contamination or noise. The authority cannot assess the broader merits of the development.
From a lending standpoint, prior approval is generally viewed favourably because the scope for refusal is narrow. If the specific matters are satisfactorily addressed, the authority must grant prior approval. This gives lenders more certainty than a full planning application, where the decision involves a wider range of considerations.
However, lenders will still check that the prior approval has been properly obtained and that any conditions have been or can be met. A prior approval that has lapsed or been granted with onerous conditions may not give the lender the comfort it needs.
How Planning Status Affects Lending Decisions
The planning position on a project influences almost every aspect of the lending decision. From the loan amount to the interest rate, the term and the conditions attached to the facility, planning is woven through the entire assessment.
Loan-to-Value Ratios
Planning permission has a direct impact on the loan-to-value ratio a lender is willing to offer. A site with full planning permission for a viable scheme will typically command a higher LTV than one with outline planning or no planning at all.
This is because the value of the site is closely linked to its planning status. A plot with full planning for ten residential units is worth considerably more than the same plot without planning. Lenders base their LTV calculations on the current value of the security, so a stronger planning position translates into a higher site value and therefore a larger potential loan.
For development finance, lenders also consider the gross development value of the completed scheme. Full planning gives the lender confidence in this figure because the scheme is defined. Without full planning, the GDV is speculative, and lenders will apply wider margins to account for the uncertainty.
Interest Rates and Fees
Projects with uncertain planning positions attract higher interest rates. This reflects the additional risk the lender is taking. If planning is refused or amended, the project may stall, the exit strategy may fail and the lender’s security could lose value.
Borrowers with full planning in place typically access the most competitive rates. Those with outline planning or pending applications will pay a premium. Pre-planning deals, where they are available, carry the highest costs.
Loan Terms and Conditions
Lenders may attach specific conditions to a facility based on the planning position. For example, a lender might require that reserved matters are approved before releasing development stage funds. Or the facility agreement might include a condition that the borrower must not deviate from the approved plans without the lender’s prior consent.
These conditions protect the lender but can also create practical challenges for the borrower. It is important to understand what conditions may be imposed before committing to a particular lender.
Lending With Full Planning vs Without Planning
The difference between approaching a lender with full planning versus without it is substantial. Here is how the two scenarios typically compare.
With Full Planning
When a borrower has full planning permission in place, the lender can assess the project against a defined scheme. The drawings are finalised, the conditions are known and the borrower can provide a detailed cost plan based on the approved design.
The lender’s valuer will inspect the site and assess the current value on the basis that planning is in place. They will also provide a gross development value based on the approved scheme. Our article on the role of a valuer in a bridging loan transaction explains how this process works.
With full planning, the lender can release funds with confidence that the borrower has a clear path to completion and a viable exit strategy. This typically results in faster approvals, better terms and a smoother drawdown process.
Without Full Planning
Lending without full planning is not impossible, but it is considerably more difficult. The pool of willing lenders is smaller, the terms are less favourable and the process takes longer.
Some lenders will consider funding the purchase of a site that does not yet have planning permission, particularly if the borrower has a strong track record, the site has obvious development potential and the planning risk is considered manageable. In these cases, the loan is typically structured as a short-term bridging facility to cover the period while planning is being obtained.
The lender will value the site on its current use value rather than its potential value with planning. This means the loan amount will be lower relative to the purchase price, and the borrower will need to contribute more equity.
For borrowers considering this route, it is worth understanding how fast bridging finance can be arranged so that timing expectations are realistic from the outset.
Pre-Planning Finance Options
There are situations where a borrower needs finance before planning permission has been obtained. This might be to purchase a site at auction, to acquire a property before a competitor or simply to begin the planning process on a site they already own.
Site Acquisition Loans
A site acquisition loan allows the borrower to purchase a development site before planning is in place. The lender takes security over the site and lends against its current value. The borrower then uses the time provided by the loan term to submit and obtain planning permission.
These loans are inherently riskier for the lender because the exit strategy depends on planning being granted. Lenders will therefore scrutinise the borrower’s planning consultant, the pre-application advice received and the local planning context before agreeing to lend.
Bridging Loans for Pre-Planning
Bridging loans can be used to fund the purchase or refinance of a site while a planning application is pending. The borrower’s exit strategy is typically to refinance onto a development finance facility once planning is obtained or to sell the site with the benefit of planning.
These deals require a credible planning strategy. Lenders will want to see pre-application advice from the local authority, a planning consultant’s report and evidence that the proposed scheme is realistic and policy-compliant.
Properties that are uninhabitable are often acquired using bridging finance ahead of planning being secured for conversion or redevelopment.
Planning Promotion Agreements
In some cases, landowners enter into planning promotion agreements with developers. Under these arrangements, the developer funds and manages the planning process in exchange for a share of the uplift in land value once planning is granted. Lenders generally do not fund planning promotion agreements directly, but borrowers may use bridging finance to support their obligations under such arrangements.
How Planning Affects LTV and Terms
Understanding the relationship between planning and lending terms helps borrowers set realistic expectations.
Current Use Value vs Hope Value
Lenders will always base their LTV on a defensible valuation. Without planning, the site is valued at its current use value. With planning, the site value reflects the consented scheme.
There is a concept known as hope value, which represents the premium a buyer might pay for a site in anticipation of planning being granted. Lenders are generally uncomfortable lending against hope value because it relies on an uncertain future event. Some specialist lenders will acknowledge a degree of hope value, but borrowers should not expect this to materially increase their loan.
Typical LTV Ranges
For development finance with full planning, lenders typically offer up to 65-70% of the current site value and up to 90% of build costs. The total facility is usually capped at 60-70% of the gross development value.
For site acquisition without planning, LTV is usually limited to 60-65% of the current use value. Build cost funding is not typically available until planning is in place.
Bridging loans for sites with planning potential may offer 65-75% of the current value, depending on the strength of the planning case and the borrower’s track record.
Term Lengths
Pre-planning bridging loans are usually structured over 6 to 18 months. This gives the borrower time to submit and obtain planning permission. Development finance facilities, once planning is in place, typically run for 12 to 24 months depending on the scale of the project.
Borrowers should be realistic about planning timescales. A straightforward householder application might be determined within eight weeks, but a major application for a new-build residential scheme could take six months or longer. Appeals add further time.
The Planning Application Process for Borrowers
Borrowers who are new to the planning process benefit from understanding the key stages and how they interact with lending.
Pre-Application Advice
Before submitting a formal application, it is advisable to seek pre-application advice from the local planning authority. This is an informal process where the authority provides guidance on whether a proposed scheme is likely to be acceptable and what issues might arise.
Pre-application advice is not binding, but it is extremely useful when presenting a project to a lender. A positive pre-application response gives the lender confidence that planning is achievable. A negative response is also valuable because it allows the borrower to amend the scheme before investing in a full application.
Submitting the Application
A planning application must be submitted with the correct forms, the appropriate fee and all necessary supporting documents. These documents typically include architectural drawings, a design and access statement, ecological surveys, transport assessments and various technical reports depending on the nature and location of the development.
The quality of the application matters to lenders. A well-prepared application with thorough supporting documents is more likely to be approved and less likely to face delays. Lenders view the professionalism of the planning submission as an indicator of the borrower’s competence as a developer.
Determination Period
The local planning authority has a statutory period within which to determine the application. For minor applications, this is eight weeks. For major applications, it is thirteen weeks. For applications that require an environmental impact assessment, it is sixteen weeks.
In practice, many applications take longer than the statutory period. Lenders will factor this into their assessment of the loan term and may build in a buffer to account for potential delays.
Planning Conditions
Most planning permissions are granted subject to conditions. These might include requirements to submit and approve detailed materials, to carry out archaeological investigations, to implement a landscaping scheme or to restrict construction hours.
Pre-commencement conditions are particularly important because they must be discharged before any building work begins. If a borrower fails to discharge pre-commencement conditions, any work carried out could be unlawful. Lenders are acutely aware of this and will usually require evidence that pre-commencement conditions have been discharged before releasing development stage funds.
Planning Appeals
If a planning application is refused, the borrower can appeal to the Planning Inspectorate. Appeals can take several months to be determined and the outcome is uncertain. From a lender’s perspective, a project that is subject to a planning appeal carries significant risk.
Some lenders will fund borrowers through the appeal process, but only if the grounds for appeal are strong and there is a credible fallback position. The borrower will need to demonstrate that even if the appeal fails, the lender’s security is protected.
Section 106 Agreements and CIL
Planning obligations can have a significant impact on project viability, and lenders pay close attention to them.
Section 106 Agreements
Section 106 agreements are legal agreements between the developer and the local planning authority. They require the developer to provide certain benefits in connection with the development. Common obligations include affordable housing contributions, education contributions, highway improvements and open space provision.
Section 106 obligations are attached to the land and bind future owners. This means that if the lender takes possession of the site, it inherits the Section 106 obligations. Lenders will therefore scrutinise the terms of any Section 106 agreement carefully.
The financial impact of Section 106 obligations can be substantial. Affordable housing requirements alone can significantly reduce the profitability of a residential scheme. Lenders will model the development appraisal with all Section 106 costs included to ensure the project remains viable.
Community Infrastructure Levy
The Community Infrastructure Levy is a charge that local authorities can impose on new development to fund infrastructure. Unlike Section 106, CIL is a fixed charge calculated by reference to the size and type of the development.
CIL is payable on commencement of development, although phased payment arrangements are available for larger schemes. Lenders will include CIL in the project cost plan and ensure that sufficient funds are available to meet the liability.
Some developments are exempt from CIL, including self-build projects and certain affordable housing schemes. Borrowers should establish their CIL position early in the process and communicate it clearly to the lender.
Interaction Between Section 106 and CIL
Section 106 and CIL serve different purposes. Section 106 addresses site-specific impacts while CIL funds broader infrastructure. Since 2019, local authorities have been able to use both mechanisms, and the combined cost can be significant.
Lenders will want to see a comprehensive assessment of all planning obligations before committing to fund a project. Borrowers who present a clear schedule of obligations, along with evidence of how they will be funded, demonstrate the kind of thorough preparation that lenders value.
Common Planning Issues That Affect Lending
Certain planning issues arise regularly and can cause problems in the lending process. Being aware of these issues helps borrowers address them proactively.
Expired or Expiring Planning Permission
Planning permission has a finite life. If the permission expires before development commences, the borrower must submit a new application. Lenders will check the expiry date of the planning permission and may decline to lend if there is insufficient time remaining to complete the project.
Borrowers should be aware that “commencing development” has a specific legal meaning. It usually requires more than just clearing the site. Typically, the commencement of material operations such as digging foundations or laying a road is required. Lenders may require evidence that a lawful commencement has taken place.
Non-Material Amendments and Variations
During the course of a development, it is common for the borrower to want to make changes to the approved scheme. Minor changes can be approved through a non-material amendment application. More significant changes require a Section 73 application to vary a condition of the original permission.
Lenders will want to be informed of any proposed changes and may need to approve them before they are submitted. This is because changes to the scheme could affect the gross development value, the build costs or both.
Enforcement Action
If development is carried out without planning permission or in breach of planning conditions, the local authority can take enforcement action. This can include stop notices, enforcement notices and even prosecution.
Enforcement action is a serious concern for lenders because it can halt a project entirely and destroy the value of the security. Lenders will carry out planning searches to check for any enforcement history on the site and may decline to lend if there is an unresolved enforcement issue.
Neighbouring Developments and Local Plan Changes
The planning context is not static. Changes to the local plan, emerging neighbourhood plans or neighbouring developments can all affect the viability or deliverability of a project. Lenders with experience in development finance will consider the broader planning context as part of their assessment.
For borrowers working with commercial property, local plan policies on employment land and retail frontages can be particularly relevant.
Protected Buildings and Conservation Areas
Developments involving listed buildings or properties in conservation areas face additional planning requirements. Listed building consent is needed for any works that affect the character of a listed building, and conservation area consent may be required for demolition.
These additional requirements can extend timescales and increase costs. Lenders will factor them into their assessment and may require specialist reports to confirm that the proposed works are achievable within the planning framework.
How to Present Planning to a Lender
The way a borrower presents the planning position can make a significant difference to the lender’s response. A well-organised planning package demonstrates professionalism and makes the lender’s job easier.
Compile a Planning Summary
Prepare a concise summary of the planning position covering the planning reference number, the date of approval, the expiry date, the approved scheme and any conditions. Include a note on which conditions have been discharged and which remain outstanding.
Provide Key Documents
Include copies of the decision notice, the approved drawings and any Section 106 agreement. If there have been subsequent amendments or variations, include those as well. For projects relying on permitted development, provide the lawful development certificate.
Address Conditions Proactively
If there are outstanding conditions, prepare a schedule showing each condition, what is required to discharge it and the expected timeline. If pre-commencement conditions remain outstanding, explain what steps are being taken to address them.
Include Pre-Application Advice
If the project is at a pre-planning stage, include any pre-application advice received from the local authority. This helps the lender assess the likelihood of planning being granted.
Demonstrate Your Planning Team
Identify the planning consultant, architect and any other professionals involved in the planning process. Lenders take comfort from knowing that experienced professionals are managing the planning side of the project.
Be Transparent About Risks
If there are planning risks, it is better to acknowledge them upfront than to have the lender discover them during due diligence. A borrower who understands and can articulate the planning risks demonstrates competence and builds trust.
Borrowers who want to understand how quickly they could secure a lending decision once their planning documentation is in order can use our decision in principle engine for an initial indication.
Frequently Asked Questions
Can you get development finance without planning permission?
It is possible but difficult. Some specialist lenders will fund site acquisitions without planning in place, typically at lower LTV ratios and higher interest rates. The loan is usually structured as a short-term bridging facility to cover the period while planning is obtained. The borrower will need a strong track record, a credible planning strategy and a viable exit route if planning is not granted.
Does outline planning permission satisfy lender requirements?
Most development finance lenders require full planning permission before releasing build stage funds. Some will accept outline planning for the initial site acquisition but will require reserved matters approval before the facility converts to a full development loan. Borrowers should expect less favourable terms when relying on outline planning alone.
How do planning conditions affect a development loan?
Planning conditions are reviewed carefully by lenders. Pre-commencement conditions must typically be discharged before the lender will release funds for construction. Conditions that restrict the development in unexpected ways, such as limiting opening hours for a commercial scheme or requiring expensive mitigation works, can affect the viability of the project and therefore the lender’s willingness to fund.
What happens if planning permission expires during the loan term?
If planning permission expires before development has lawfully commenced, the borrower loses the right to build the approved scheme. This is a serious issue for lenders because the value of the security drops significantly. Lenders will check the expiry date at the outset and ensure that the loan term allows sufficient time for commencement. Borrowers should be aware of the deadline and take steps to commence development in time.
Will a lender fund a project that is subject to a planning appeal?
Some lenders will, but the pool is limited and the terms will reflect the additional risk. The borrower will need to demonstrate strong grounds for appeal, ideally supported by a planning barrister’s opinion. The lender will also want to understand the fallback position if the appeal fails. In most cases, the borrower will need to show that the site retains sufficient value in its current state to protect the lender’s position.
