How permitted development works
Permitted development rights allow certain changes of use without a full planning application. In England, the most commonly used for residential conversions is Class MA, which allows many buildings in commercial, business and service use to become homes. Other classes cover agricultural buildings and some other uses. Most require prior approval, where the local authority assesses specific matters such as transport, contamination, flooding, noise and natural light in habitable rooms.
Prior approval is narrower than full planning, but it is not automatic. Some areas have Article 4 directions removing the rights, conservation areas and listed buildings have extra restrictions, and conditions often apply. Homes created through permitted development in England must meet the nationally described space standard. The rights apply in England; Wales and Scotland have their own rules.
Prior approvals also have time limits. Under Class MA, for example, the change of use must be completed within three years of the approval date, so the programme needs to fit that window.
How lenders fund PD conversions
Smaller conversions are often funded with heavy refurbishment bridging. The lender advances part of the purchase price and releases works funding in stages, with the facility sized against the gross development value, typically up to around 65% to 75% of that value, alongside a limit on loan to cost. Larger schemes may suit development finance with a monitoring surveyor and a formal drawdown process.
Where prior approval is not yet granted, lenders usually value the building on its existing use and lend less. Some will fund the purchase while the application is decided, then increase the facility once approval is in place.
Costs to budget for include arrangement and exit fees, valuation and monitoring fees, legal costs, building control, warranty or professional certificate costs and the application itself.
Quality matters for the exit
Lenders and valuers judge converted units by what residential buyers and mortgage lenders will accept, not just by what the approval allows. Small or poorly lit flats can be harder to sell or refinance, even with approval in place. Points lenders check include:
- Unit sizes, layouts and natural light in every habitable room
- Fire safety, escape routes and sound insulation between units
- A new-build warranty or professional consultant's certificate, which buyers' lenders usually require
- Parking, refuse storage, cycle storage and access
- Comparable sales of converted and new-build flats nearby
Office buildings in particular can have deep floor plates that make some flats dark, and ground floor units on busy streets may be less attractive to buyers. Addressing these points early supports both the valuation and the exit.
Common pitfalls
Several issues come up repeatedly on permitted development schemes. Buying a building on the assumption that prior approval will follow, without checking for an Article 4 direction or other restrictions, can leave you with a building valued on its existing use. Approvals granted for more or smaller units than the market wants can make the scheme harder to value and sell. And conditions attached to the approval, such as noise mitigation, need to be costed and discharged.
Checking the planning history, the local authority's approach and the likely end values before you commit reduces these risks and makes the case easier to present to lenders.
Planning the exit
The exit is usually a sale of the units or a refinance onto buy-to-let or portfolio finance. If you plan to hold the units, check that refinance lenders accept the unit sizes, the building type and any commercial element remaining in the building. If you plan to sell, a development exit loan can repay the conversion lender once the works are complete, giving time to sell.
Allow time in the term for building control sign-off, warranty inspections, new addresses and the setting up of leases, service charges and management arrangements. These steps are needed before units can be sold or mortgaged.
We compare lenders on how they treat prior approval schemes, the facility structure and the exit, then approach suitable lenders with a clear case. Instant Quotes gives indicative figures as a starting point, and final terms depend on each lender's valuation and checks.
