How loan to value on land changes before and after planning consent is granted

A lender does not lend against your hopes for a site. It lends against a valuation, usually prepared by a qualified valuer, that reflects what the land is worth in its current planning position. The two figures that matter most are the current value, sometimes expressed as existing use value, and the value with consent once permission has been granted.

Before consent, the valuer looks at the land as it stands: its existing use, its location, and the realistic prospect, but not the certainty, of future permission. Any development potential is discounted heavily, because it is not yet secured. This is often referred to as hope value, and lenders treat it cautiously.

After consent, the valuer can point to a defined, permitted scheme. The value reflects what a buyer would pay for consented land, taking account of the scheme's gross development value less the costs and obligations of delivering it, including any section 106 and CIL. That is a firmer, more defensible number, and it is the reason a consented site supports a larger loan than the same site did the day before permission arrived.

Before planning permission is in place, a lender is taking planning risk, so it lends conservatively. The advance is usually measured against the current value of the land, and loan to value typically sits in a band of around 50% to 65% of that figure.

Where a site falls within that band depends on several things: how strong the case for future consent looks, the quality of the location, the applicant's track record, and the credibility of the exit. A site with a clear route to permission and a sensible exit sits towards the higher end. A more speculative position sits lower, or may need a larger deposit from the borrower to bridge the gap.

Pricing reflects the risk too. Land bridging at this stage typically prices at around 0.75% to 1.1% per month, with interest usually rolled up rather than serviced. Facilities run from £100k to £25m over terms of 1 to 36 months. These are indicative bands, not a quoted rate, and the actual figure depends entirely on the specific site and borrower.

Once a strong consent is granted, the picture improves. The land is now worth more, and the planning risk that made a lender cautious has largely fallen away. Loan to value can move up to around 65% to 75% of value, and it is applied to a higher valuation, so the cash advance can rise on both counts.

Full detailed permission generally supports the firmer end of that after-consent band, because there are no reserved matters left to resolve and the scheme is defined. Outline permission with reserved matters still outstanding tends to sit lower within the band, reflecting the planning work that remains.

With a strong consent, some cases can also move away from monthly land bridging pricing towards senior debt from around 6% to 8% a year, particularly where the exit is well evidenced and the sponsor is experienced. Again these are indicative bands. The combination of a higher valuation and a higher loan to value percentage is exactly what the planning uplift unlocks for a borrower, and it is why the timing of a refinance around the grant of consent can matter so much.

The step up in loan to value is not generosity, it is a rational response to reduced risk and increased value. Two things change at the moment consent is granted.

First, the value rises. The land now carries a permitted scheme, so a buyer would pay more for it. The planning uplift is real and measurable rather than speculative. Second, the risk falls. Before consent, the biggest uncertainty is whether permission will ever be granted. Once it is, that uncertainty is resolved, and the lender is left with more familiar risks around build, sale and timing rather than the binary question of planning.

Because the lender is now advancing against a higher, firmer value with less risk attached, it can comfortably lend a higher percentage of a bigger number. That is the mechanism behind the whole model of planning gain finance: money is advanced against current value while the planning risk is live, then the facility is resized or refinanced once consent has crystallised the uplift. Getting the timing right around the grant of permission is often where the value is captured.

On land facilities, interest is usually rolled up rather than paid monthly. That means the interest is added to the loan and settled at the end, when the facility is repaid on a sale or refinance. It suits land deals, because a site with no income cannot easily service monthly payments during the planning period.

Rolling up interest creates a difference between the gross loan and the net loan:

• The gross loan is the total facility, including the rolled up interest and any fees.
• The net loan is the cash you actually receive on day one.

Loan to value is normally measured against the gross loan, because that is the total exposure secured on the land. So a lender working to, say, 65% loan to value is fitting the gross loan, interest and fees included, inside that limit. The practical consequence is that the net cash in your hand is lower than the headline loan to value might suggest, and the longer the term, the more interest rolls up and the smaller the net advance becomes relative to the gross. We always model both figures so you know the real cash position.

As an illustration only, this is not a promise of any particular value or outcome. Imagine a site valued at £1,000,000 in its current use, with no consent yet. A lender might advance around 60% of current value on a gross basis, giving a gross facility of about £600,000. With rolled up interest and fees taken from that, the net cash released on day one would be lower, perhaps in the region of £540,000 to £560,000 depending on term and rate.

Now imagine full planning permission is granted, and a valuer assesses the consented land at £1,800,000 after allowing for build costs and obligations. A lender might now advance around 70% of that value, a gross facility of about £1,260,000. That larger facility could repay the original bridge, cover the rolled up interest, and release meaningful additional funds against the crystallised uplift.

The figures are purely hypothetical and rounded for clarity. Real numbers depend on the valuation, the strength of consent, the obligations, the term and the borrower. Planning gain and land finance for companies, developers, promoters and investors is unregulated commercial lending outside the FCA's regulated-mortgage perimeter, and nothing here is financial, legal, planning or tax advice.