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There are many different approaches people can have when it comes to investing in property. Whether that be, buying and holding it to generate a passive income or to renovate and sell for a profit; it ultimately depends on what finance is available a lot of the time.
More often than not, if a property is being purchased that requires works being completed, there is going to be an element of planning involved with most property transactions.
It can be a common misconception to think there isn’t finance available if the required planning for your project (refurb, conversion, new build development) isn’t in place / approved at the time of purchasing… This however, is not the case!
We work with various lenders who are able to provide short term bridging loans that allow you to purchase a property / land without planning in place on the basis that you gain planning while on this short term facility.
Is Buying a Property / Land without Planning Right for you?
The reason we find a lot of our clients need this sort of financial arrangement is to ensure that they don’t lose out to another buyer. Planning applications can take months to be approved so you can’t always wait for this to be in place prior to purchase.
There is obviously an element of risk to this as you could purchase a property and your planning application then gets rejected, leaving you with an asset that can’t be converted / refurbished as you had hoped, which underlines why there must be a plan B or even C to fall back on.
Buying a Property / Land without Planning Rates
All being well and the lender being comfortable with plan A, B and C (if applicable), then we typically see them being able to provide 70-75% LTV at circa 0.8% a month. Further to this, a lot of these lenders are also able to fund 100% of the works once planning has been approved.
They would switch the loan from a bridging loan to a refurbishment loan and the works will be funded in staged payments subject to the total loan (bridging loan + refurbishment loan + interest & fees) not being more than 70-75% of the loan to gross development value (LTGDV).
Example:
Client A wants to purchase a commercial unit that at the time of purchase does not having planning permission.
The intention is to convert the property into 5 self contained flats that will be worth £1,500,000.
The works will cost £500,000.
Plan B – the client will let the commercial unit out on a long term lease.
- The purchase price is £500,000.
- Lender can provide a £350,000 facility (interest rolled) on a 12 month term to allow Client A to purchase the commercial unit (70% LTV).
- During the 12 months, the client will then ideally gain planning permission to convert to 5 flats.
- Once planning is approved, the lender can then provide a further £500,000 to fund the build (interest rolled).
- £350,000 + £500,000 + circa £130k fees, interest etc. = £980k gross Loan (65% LTGDV).
How can Advocate Finance help?
Whether you are a property developer looking to sell the assets for a profit on completion of the works, or if you are hoping to retain them and rent these properties out as part of your property portfolio, we will be able to find you a solution to meet your specific needs.
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