With the deadline for converting office space into residential properties drawing closer, the subject of Permitted Development (PD) funding is a hot topic in the development finance industry – with a number of lenders and brokers pulling their products.

Broker Adapt Finance recently told Development Finance Today that while PD funding may seem risky at the moment, deals can still be made safely.

Jordan McBrian, Director at Adapt, said: “As long as sanctions are put in place, such as ‘lending against the commercial value as opposed the residential value’, the lender will be protected should PD not be extended.”

The future of PD is up in the air. There have been rumours that temporary government measures will extend beyond May 2016, but councils have started to block applications using the ‘article 4 direction’, which makes planning permission a necessity.

This uncertainty has tightened up the criteria for lenders and brokers offering PD products.

During the past year, specialist lender Omni Capital has been prominent in this area, providing funding for PD projects in prime Central London and the surrounding areas.

Bob Sturges, Head of Communication at Omni Capital, told DFT: "In each case where we have granted PD funding, which by its very nature comes with an element of commercial risk, it has been in close association with a highly experienced developer able to exert firm budgetary and timeline controls over the project.

"This has allowed us to lend with confidence; and, perhaps unlike other lenders, our experience of this interesting, but challenging, niche sector has been an entirely satisfactory one."

For the time being, it appears that the reputation of the developer is of paramount importance.

Jo Breeden, Managing Director at Crystal Specialist Finance, said: “The problem we have seen is from a number of applications from inexperienced developers, with whom we can see very little in the way of track record, who state that they can complete the project within the current PD deadline but without any reassurances. This obviously puts all parties at risk.

“Given that there is such uncertainty around the PD extension and potential inclusion of alternative property types, I believe lenders are wise to avoid entertaining any enquiries other than those from applicants who have a proven track record in this area.”

So should the deadline for office to residential conversions be extended?

Scott Marshall, Operations Director at Roma Finance, told DFT: "With an acute housing shortage it's one way of helping to ensure otherwise disused buildings are brought back to life for the good of house buyers and renters, and the local community.

“At Roma Finance we have seen a number of experienced property developers maximise the potential of buildings and return a quality conversion with good long term yields.”

It seems that while the future of PD up in the air, lenders and brokers are going to approach the subject with a great deal of caution.

Housing and Planning Minister Brandon Lewis told a Select Committee earlier this month that an announcement is imminent - but failed to give any indication as to what the government’s final decision would be.