Planning Permission and Development Finance: What You Need

Why Planning Permission Matters for Development Finance

The relationship between **planning permission** and [development finance](/services/development-finance) is fundamental. Planning status is one of the first things any lender assesses when reviewing a development finance application, and it directly determines whether your project can be funded, which lenders will consider it, and on what terms.

Most development finance lenders require **full planning permission** (or a close equivalent) before they will advance funds. This requirement exists because without planning consent, there is no certainty that the proposed development can proceed, which makes the project unfinanceable for most mainstream lenders.

However, the planning system is nuanced, and there are various stages, types of consent, and strategies that developers can use to navigate the relationship between planning and finance. This guide explains what you need to know.

Types of Planning Permission and How Lenders View Them

Full Planning Permission

**Full planning permission** grants consent for a specific development as described in the application drawings and documents. This is the gold standard for development finance lenders.

When full planning permission is granted, it is subject to **conditions** that must be discharged before or during construction. Common conditions include:

• Materials approval
• Landscaping scheme
• Construction management plan
• Drainage details
• Archaeological investigation
• Contamination remediation
• Highway works agreement

Lenders assess whether conditions are:

• Pre-commencement conditions - must be discharged before any work starts
• Pre-occupation conditions - must be discharged before the building is occupied
• Informative conditions - advisory notes, not binding

**Key Takeaway:** Full planning permission with all pre-commencement conditions discharged (or capable of discharge) is the ideal position for a development finance application. Most lenders will not release funds until pre-commencement conditions are dealt with.

Outline Planning Permission

**Outline planning** establishes the principle of development on a site without fixing the detailed design. It is typically used for larger sites where the developer wants to confirm the site can be developed before investing in detailed design work.

Outline planning grants consent for the general type and scale of development, with detailed design reserved for a subsequent **reserved matters** application covering:

• Layout - the arrangement of buildings on the site
• Scale - the height and massing of buildings
• Appearance - the design and materials
• Access - vehicular and pedestrian access points
• Landscaping - hard and soft landscaping

**How lenders view outline planning:**

• Most development finance lenders will not advance on outline planning alone
• Some lenders will consider applications where reserved matters have been submitted and a positive outcome is expected
• A few specialist lenders may fund land acquisition on outline planning if the borrower has a strong track record and the site has clear development potential
• Outline planning is more commonly used to support bridging finance for site acquisition while reserved matters are progressed

Reserved Matters Approval

Once reserved matters are approved, the position is equivalent to full planning permission with conditions. Most development finance lenders will engage at this stage.

Prior Approval (Permitted Development)

For projects under [permitted development rights](/knowledge-hub/permitted-development-finance-conversions), planning permission is not required but **prior approval** from the local authority is needed. Prior approval is determined within 56 days and is assessed against specific criteria.

Lenders generally view prior approval favourably, treating it similarly to full planning permission. However, they will want to see:

• Prior approval granted (not just submitted)
• No outstanding challenges or judicial review risk
• Building regulations compliance strategy

Pre-Application Advice

**Pre-application advice** is informal guidance from the local planning authority about how they would likely view a planning application. It carries no legal weight and does not constitute consent.

Lenders do not treat pre-application advice as planning permission, but positive pre-app advice can strengthen a bridging loan application for site acquisition while formal planning is pursued.

Funding Sites Without Planning Permission

The Planning Risk

Acquiring a site **before planning permission is granted** is inherently risky:

• Planning may be refused entirely
• The approved scheme may differ significantly from what you envisaged (fewer units, different layout)
• Conditions may be onerous (affordable housing, CIL, highway works)
• The planning process may take much longer than expected
• Appeals are expensive and time-consuming

Most development finance lenders will not fund sites without planning because the development cannot proceed without consent, leaving the lender secured on bare land or an existing building with uncertain development potential.

Bridging Finance for Land Acquisition

The most common strategy for acquiring sites without planning is to use a [bridging loan](/services/commercial-bridging):

1. Purchase the site with bridging finance secured on the existing use value
2. Submit and progress the planning application
3. Once planning permission is granted, refinance to development finance for the build phase

This two-stage approach manages the planning risk in the bridging facility (where lenders are more comfortable with uncertainty) and transitions to development finance once the planning risk is resolved.

Conditional Land Contracts

Another approach is to negotiate a **conditional contract** (also called a **subject to planning contract**) where:

• You exchange contracts with the landowner, but completion is conditional on obtaining satisfactory planning permission
• You have a defined period (typically 12-24 months) to secure planning
• If planning is refused, the contract falls away (usually with forfeiture of a deposit)
• If planning is granted, you complete the purchase and arrange development finance

This approach avoids the need for bridging finance during the planning period but requires the landowner to agree to a conditional sale.

Option Agreements

An **option agreement** gives you the right (but not the obligation) to purchase the land within a specified period, usually conditional on obtaining planning permission. Options involve:

• An option fee (typically 5-10% of the land value)
• A defined option period (6 months to several years)
• A pre-agreed purchase price or pricing formula

Options allow you to control the site while pursuing planning without committing to the full purchase price.

**Key Takeaway:** If you want to acquire a site without planning permission, use bridging finance, a conditional contract, or an option agreement to manage the planning risk. Do not expect development finance lenders to fund a site where the development cannot yet proceed.

How Planning Conditions Affect Your Finance

Pre-Commencement Conditions

These must be discharged **before any construction work begins**. Lenders will not release build drawdowns until pre-commencement conditions are dealt with. Common examples:

• Contamination investigation and remediation strategy
• Archaeological evaluation
• Construction management plan
• Surface water drainage scheme
• Details of external materials

**Timeline impact:** Discharging pre-commencement conditions can take **4-12 weeks** after planning permission is granted. Factor this into your programme and your development finance term.

Section 106 Agreements

**Section 106 agreements** (also called planning obligations) are legally binding agreements between the developer and the local authority, typically covering:

• Affordable housing - a percentage of units (often 20-40%) must be affordable tenure
• Financial contributions - towards education, healthcare, open space, highways
• On-site provision - public open space, play areas, community facilities
• Management arrangements - long-term maintenance of shared areas

S106 obligations directly affect project viability because they:

• Reduce the effective GDV (affordable units sold at a discount)
• Add costs (financial contributions, on-site provision)
• Add complexity (negotiation with housing associations, management structures)

Lenders assess S106 obligations carefully and factor them into their appraisal. A well-negotiated S106 that does not destroy project viability is acceptable. An S106 that leaves insufficient profit margin will cause the application to be declined.

Community Infrastructure Levy (CIL)

CIL is a fixed charge levied on new development based on the floor area created. Rates vary by local authority and can be substantial in some areas. Unlike S106, CIL is non-negotiable.

**Important:** CIL can be a significant cost. For example, a local authority charging £150 per square metre on a 5,000 sq ft (465 sq m) residential scheme would levy CIL of approximately £69,750.

CIL must be included in your development appraisal alongside S106 costs.

Planning Risk Assessment for Lenders

Lenders assess planning risk beyond simply checking that permission has been granted:

Expiry Risk

Full planning permission typically expires **3 years** from the date of grant. If development has not commenced within this period, the permission lapses. Lenders want to see:

• Sufficient time remaining to complete the project
• Evidence that a material start has been made (or will be made in time)

Challenge Risk

Planning decisions can be challenged through **judicial review** within 6 weeks of the decision. Lenders may wait until this period has passed before completing, particularly for controversial schemes.

Condition Discharge Risk

Some conditions may be difficult or expensive to discharge. Lenders will review conditions and assess whether any present a material risk to the project proceeding.

Variation Risk

If you need to make changes to the approved scheme during construction, a **Section 73 (minor material amendment)** or **Section 96A (non-material amendment)** application may be required. Lenders want to understand the approved parameters and any flexibility for changes.

**Key Takeaway:** Planning permission is not a simple yes or no. The conditions, S106 obligations, CIL liability, and remaining life of the consent all affect your development finance application. Present a thorough planning analysis in your application.

Working with Planning Consultants

A **planning consultant** can add significant value for development finance applications:

• Pre-purchase assessment - advising on planning prospects before you commit to a site
• Application preparation - managing the application process for the best outcome
• Condition discharge - efficiently dealing with planning conditions
• S106 negotiation - securing the best terms on planning obligations
• Committee advocacy - representing your case at planning committee
• Appeal management - handling appeals if planning is refused

The cost of a planning consultant (typically £3,000-£15,000 for a standard application) is a worthwhile investment given the planning risk involved in development projects.

Timeline: Planning to Finance to Build

A realistic timeline from identifying a site to starting construction:

Buying a site with planning permission already granted significantly reduces the overall timeline. Use our [development finance calculator](/calculators/development) to model your project economics once planning is secured.

Summary

Planning permission is the gateway to development finance. Full planning permission with dischargeable conditions opens the widest range of lenders at the best terms. Sites without planning require alternative strategies - bridging finance, conditional contracts, or option agreements - to manage the planning risk before transitioning to development finance.

Understanding how lenders view different planning statuses, how conditions and S106 obligations affect your appraisal, and how to present a thorough planning analysis in your application will strengthen your development finance case and accelerate the funding process.

If you have a site with planning permission and want to explore development finance options, or need advice on financing a site while planning is progressed, [contact our team](/contact) for expert guidance.

*Written by Matt Lenzie, Founder of Commercial Mortgages Broker. Ex-Lloyds Bank & Bank of Scotland.*