Permitted Development Finance

What does permitted development finance cover?

Permitted development rights allow property owners and developers to carry out specified categories of works or changes of use without applying for full planning consent. The rights remove the main planning barrier to conversion projects, but they do not remove the need for capital. Finance is required to fund the purchase, the build programme, and the gap between day one outlay and the completed asset value.

The right finance structure depends on the scale of the project. Smaller conversions of one to three units with straightforward internal works are typically funded on bridging finance, with a single lump-sum advance drawn on day one. Larger schemes involving multiple units, significant structural works, or staged construction are funded on development finance, with drawdowns released against certified build progress.

Which permitted development rights qualify for finance?

Permitted development rights cover a wide range of conversions and changes of use. The classes most relevant to property development finance are Class MA, Class Q, and Class N, though lenders will fund any permitted development scheme where prior approval has been secured and the exit strategy is credible.

Class MA: commercial to residential. Class MA allows the conversion of any Class E commercial property to residential use. Class E covers offices, retail units, restaurants and cafes, financial and professional services, light industrial premises, medical or health facilities, and creches. Following the March 2024 amendments, there is no floorspace cap under Class MA, which means large commercial buildings can be converted without a size restriction. The same amendments removed the previous requirement for a building to have been vacant for three months before an application could be submitted. The local authority has 56 days to determine a prior approval application, and grounds for refusal are narrowly defined: flooding risk, transport impact, noise, contamination, and natural light provision. Class MA accounts for the majority of permitted development finance enquiries we receive.

Class Q: agricultural to residential. Class Q permits the conversion of agricultural buildings to residential dwellings. Following the May 2024 amendments, a single application can now create up to ten dwellings with a combined floor area of up to 1,000 square metres, with each individual dwelling capped at 150 square metres. The building must be in lawful agricultural use and structurally capable of conversion without the need for rebuilding. Lenders assess Class Q schemes closely, particularly in remote rural locations, where they require clear evidence of residential demand and a realistic exit at the projected GDV.

Class N and other classes. Class N permits the conversion of amusement arcades and casinos to residential. A range of other permitted development rights cover extensions, loft conversions, outbuildings, and changes within Class E. Where the primary need is short-term finance for refurbishment rather than change of use, a light refurbishment bridging loan or heavy refurbishment bridging loan may be the more appropriate structure.

Bridging loan or development finance: which structure fits your project?

The right funding structure depends on the scale of works, the number of units, and how costs fall across the project. Permitted development removes planning risk, but it does not determine your finance structure. That is determined by whether you need staged drawdowns against build progress or a single advance against current asset value.

Factor	Bridging loan	Development finance
Best suited to	1 to 3 units, light to medium conversion	4 or more units, significant construction programme
Loan advance	Single lump sum at drawdown	Staged drawdowns against certified build progress
Day one advance	Up to 75% of current market value	60% to 70% of current site value
Build costs funded	Included in lump sum	Up to 100% in staged drawdowns (subject to LTGDV cap)
Assessed on	Current value plus projected uplift	LTC and LTGDV against development appraisal
Monitoring surveyor	Not required on most cases	Required: certifies progress before each drawdown
Typical term	6 to 18 months	12 to 36 months
Rates from	0.60% per month	0.65% per month
Speed to completion	5 to 15 working days	3 to 6 weeks

The most straightforward Class MA conversions, a small office building converted to two or three flats with light internal works, are typically funded on bridging. The full facility is drawn on day one, works proceed quickly, and the exit is sale or refinance within 6 to 12 months. For larger Class MA schemes with significant structural or mechanical and engineering works, development finance with staged drawdowns provides better cash flow management and a larger total facility relative to project cost.

What we see consistently is that developers underestimate how quickly a bridging lender needs to see the exit materialise. If your conversion programme runs to 10 or 12 months, a 12-month bridging term leaves very little contingency. Development finance with a longer facility period is often the more appropriate tool, even if the headline rate looks slightly higher.

Why use a specialist broker for permitted development finance?

Permitted development finance spans two distinct product types, bridging and development finance, and different lenders operate across each. The lender who prices competitively on a Class MA office conversion in a city centre may not have appetite for a Class Q agricultural scheme in a rural market. A specialist broker maps your project to the right product and the right lender panel before you spend money on a valuation.

Lenders vary in how they assess prior approval risk, what experience thresholds they apply to first-time developers, what exit strategies they will accept, and how they handle Article 4-affected locations. Going direct to a single lender means accepting their criteria as given. Working through a broker with full access to the specialist lending market means your scheme is assessed by the lenders most likely to say yes, on the best available terms.

FD Commercial arranges permitted development finance from £250,000. No broker fee on bridging. Development finance broker fee up to 1% of the loan amount.

What do lenders assess on a permitted development scheme?

Lenders assess permitted development schemes against the same fundamental metrics as ground-up development, but generally apply a lower risk premium because planning certainty already exists. The primary underwriting considerations are the exit strategy, the strength of the development appraisal, and the professional team.

LTGDV and LTC. Standard development finance for a permitted development scheme is typically available up to 65% of gross development value. Experienced developers with a credible track record and a well-structured scheme can access stretched senior debt at up to 75% LTGDV and 90% LTC. The lower of the two metrics always applies: a scheme with high project costs relative to GDV will hit the LTC ceiling before the LTGDV limit.

Day one advance and build cost funding. The day one drawdown, used to fund the site or building purchase, is capped at 60% to 70% of current market value. Lenders will not advance 65% LTGDV on day one against an unconverted building. The gap between the day one advance and the total facility is drawn in tranches as build progress is certified by the monitoring surveyor. On most development finance structures, lenders will fund up to 100% of the build costs within the overall facility, subject to the LTGDV cap being maintained throughout.

Developer experience. Permitted development projects carry a lower experience bar than ground-up construction. A first-time developer with a competent contractor and a clear exit can access development finance for a PD conversion. Lenders look more closely at the contractor's track record and the exit evidence when the borrower has limited development history. Joint venture arrangements with a more experienced development partner can unlock better leverage.

Borrower types. Lenders will consider applications from individuals, limited companies, limited liability partnerships, special purpose vehicles, and trusts. Most specialist development lenders prefer SPV structures for development schemes, particularly where there are multiple investors or where the borrower has a wider property portfolio that should be ring-fenced from the development risk.

Minimum loan sizes. Most specialist development lenders have minimum facility sizes of £500,000 to £1,000,000. FD Commercial arranges permitted development finance from £250,000 and has access to lenders who operate at the lower end of the market for single-unit or two-unit conversions, as well as facilities above £20,000,000 for larger commercial-to-residential schemes.

How prior approval affects your finance timeline

Most lenders will not complete on a permitted development scheme until prior approval has been granted. The prior approval process is not a full planning application, but it gives the local authority the opportunity to assess specified impacts before the conversion proceeds. For Class MA, the determination period is 56 days from validation. If the authority does not determine the application within that period, prior approval is deemed granted.

This means you can approach lenders during the prior approval period, get indicative terms agreed, and have a formal application ready to move immediately on approval. For Class MA in particular, the planning certainty this provides is a meaningful underwriting advantage compared with schemes requiring full consent. We regularly advise clients on timing finance alongside the prior approval process, particularly for auction purchases where completion deadlines are fixed.

Article 4 directions. Local authorities can designate Article 4 directions that remove Class MA permitted development rights in specific areas. Article 4 coverage is common in certain London boroughs and some town centres where the authority wants to protect employment land. Where an Article 4 direction applies, full planning permission is required and the finance structure should reflect the additional planning timeline and risk. Always check Article 4 coverage before spending money on a prior approval application.

What exit strategies will lenders accept?

Lenders require a credible exit strategy before approving any permitted development facility. The two primary exits are sale of completed units and refinance onto longer-term buy-to-let or portfolio mortgage finance. Both are assessed at underwriting, not at completion.

Sale. Where the plan is to sell completed units, lenders require comparable evidence of residential demand in the local market. GDV appraisals should be supported by recent comparable sales. Lenders also consider the sell-out period. For a scheme producing multiple units in a smaller market, demonstrating that all units can sell within the loan term is a material part of the credit assessment.

Refinance onto buy-to-let. Where you plan to retain converted units as an investment portfolio, the exit mortgage needs to be modelled before the development facility is agreed. We assess the projected rents against current buy-to-let ICR requirements and stress rates to confirm the exit mortgage is deliverable at the expected GDV.

This step is consistently skipped by developers and it is consistently where projects run into problems at the end of a facility term. Model the exit mortgage before you start, not after you finish.

Worked example: Class MA office conversion, East Midlands

A developer acquires a 3,200 sq ft former office building in the East Midlands with Class MA prior approval for conversion to seven one-bedroom flats.

How to apply for permitted development finance

The application process follows the same sequence for both bridging and development finance, though the timeline for development finance is longer due to the monitoring surveyor and staged draw mechanics.