How can permitted development help you make better property investment returns
As you may be only too well aware, over the last couple of years, the Government has passed various pieces of legislation targeting landlords’ profits, through increasing the cost of letting and capping tax relief. That means you need to look options you might not have previously considered, to ensure you can still make the returns you need.
One way of making money from property has always been through adding accommodation. And with ‘permitted development rights’ you can make certain improvements and extensions to a house without needing to apply for planning permission.
Bear in mind that if the property you let is a flat, maisonette or commercial building, you will not benefit from the general permitted development rights that apply to houses. And don’t forget that even if you don’t need planning, you will still need building control sign off for certain works.
What size extension could you build?
Broadly speaking, the rules state that the original rear wall can be extended by eight metres on a detached house and by six metres on a semi-detached or terraced house, single storey, to a maximum height of four metres. If the proposed extension will be within two metres of a boundary, the height is limited to three metres.
You need to be aware that if the property has already been extended since 1948, this counts towards the allocation. So if the property is detached and already has a 3 metre extension, you may only be able to build out a further 5 metres.
From your perspective as a landlord, adding up to eight meters on the ground floor of your buy to let could not only increase the capital value but also the rental income. Through extending under permitted development, you might be able to:
• Turn a small kitchen into a sizeable dining kitchen. That should increase the property’s capital value and its appeal for both the sales and lettings markets, and may enable you to achieve higher rental income.
• Increase the size of an HMO (room lets), for example by adding two bedrooms and a bathroom, which could increase your monthly rental income.
• Add a bedroom and bathroom to a family home. That could increase the capital value and push the property into a different rental bracket. You may also consider changing the let type from single let to room rentals, which could help to boost income.
Obviously, before undertaking any of these types of work, you must check that what you’re intending to do is allowed and doesn’t require any planning permission. So, before you begin any work, contact your local planning authority to make sure that your plans fall under permitted development and secure this in writing. If you’re considering letting the property as an HMO, that in itself may require you to obtain planning permission and there may also be a limit on the number of people you can have in the property. For HMOs, rules can be different from one local authority to another.
If it’s discovered at a later date that planning was required for all or even just part of the work, you have not broken any law and can apply retrospectively. However, be aware that the council can serve an enforcement notice on you if they feel that what you have done is harmful to the neighbourhood in some way, and you will be required to comply with that notice. So, rather than risk having to undo or amend works – or possibly discover that you can’t let the property in the way that you had hoped - check in advance.
Finally, even if you can’t add value to your investment property through permitted development, you may be able to add value to your own home and benefit financially that way. And if you succeed in increasing the capital value, remember that it’s a tax-free gain which you can then potentially secure a mortgage against.