A Garden Plot That Went From £75,000 to £200,000

The situation

I had a client with a house that had a huge garden. The way the plot sat, the garden ran all the way down to the next street, where there was already a row of houses.

I looked at it and you could see it straight away. Cut the end off the garden and you've got a plot you could build on, sitting right alongside houses that are already there.

Splitting the land off

First thing we had to do was make the land its own asset.

We remortgaged the house onto a standard buy to let, and split the title so the end of the garden became a plot in its own right.

At that point it got valued at £75,000, with no planning on it at all. That's what a piece of land is worth when nobody's been given permission to build on it.

He got the planning himself

He funded that bit himself and went to the local authority directly.

And it wasn't a formality. There were conditions, including planting a set number of trees. If you've taken a plot through planning you'll know exactly what I mean. A list of requirements, each one reasonable on its own, that together take time and money.

Permission came back for a six bed detached house. Guess what that did to the value.

What that decision was worth

Funding the build

With permission in place he told me he wanted to build rather than sell the plot, and that moves us out of bridging and into development finance.

The day one advance was £65,000 gross against the land. Once the arrangement fee and twelve months of retained interest came off, the net was £50,610.

So on land worth £200,000, with planning granted, his day one money was about 32% gross and about a quarter of the value once we'd netted it down. Land with planning is worth far more than land without it. But it's still land until there's a building on it, and lenders price it that way.

On top of that the lender agreed £200,000 in stages towards the build, which he'd costed at £250,000. That gets released against the work as it goes, and the first tranche only came once he'd got the foundations in himself. Day one money doesn't build a house. You put your own skin in first.

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What it shows

The economics of the whole thing turned on one planning decision. Before it, the plot was worth £75,000 and very hard to borrow anything meaningful against. After it, £200,000, and the foundation of a scheme with a £550,000 end value.

So if you own land, or a garden big enough to split, the question I'd be asking isn't what's this worth. It's what would it be worth with permission, and how likely is permission.

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