Our planning permission system, for all its good intentions, can risk derailing an investment strategy entirely. Investors can do all the right things, and still come up short.
Luke Rurans, one of our underwriters, has seen many seemingly rational investment plans come to a dead end once they’re taken to a planning department.
“What’s tricky is that every local authority will have its own preferences,” he said.
“One may approve a massive conversion plan without hesitation, whereas its neighbouring borough will take weeks to eventually decline a simple residential extension. For investors, it’s hard to know what to expect, or how to plan ahead.”
Unexpected declines will be the last thing investors need in an already challenging market. Fortunately, Luke has noted that many of the planning permission rejections he’s seen actually occur at the pre-application stage, which at least can leave investors with options.
“Most local authorities will have a duty planner service in place which will go through a person’s plans, and let them know if they’re on the right track before they formally submit any permission requests.
“If the plans make sense, this can be a quick meeting. But I’m seeing more of even the most basic of plans questioned here.”
An investor who purchased a large residential property, with plans to turn it into a HMO, could unexpectedly face issues.
“The local authority involved would likely be sympathetic to the investor’s plans though, especially if the area is in desperate need of more residential stock,” Luke explained.
“So, they could provide guidance on what changes they’d need ahead of a full application in order to provide permission.”
If the borrower took out a loan to purchase the property however, the pressure will be on. Coming to the end of a term, without planning permission granted, will require everyone involved to move quickly.
“The investor here could turn to us for optionality. First, I’d want to see evidence that they’d have plans in place to meet the local authority’s guidance.
“Then, I’d be able to explore how I could offer breathing space. With this kind of case, we’d likely provide refinancing to cover their existing obligations, and give the investor time to do what they need to do to obtain planning permission.
“With all of this addressed, we could then focus on the exit strategy. Our own BTL mortgages could be utilised here if the investor was keen to rent out their new HMO. Or, alternatively, they could sell the asset on, or refinance with an external lender.”
Often, complicated dilemmas in an investment strategy only need a simple solution to resolve. A borrower may just need time and/or breathing space to get their affairs in order, and find a way forward. At MFS, we have many ways in which we can deliver that breathing space.
