Lenders back planning reform direction of travel, but warn brokers not to expect default funding
The government’s latest overhaul of planning rules promises to “go further than ever before” to deliver 1.5 million homes this Parliament – but development finance specialists are warning that policy ambition will only matter if it translates into predictable, fundable outcomes on the ground.
Under the revamped National Planning Policy Framework (NPPF) consultation, ministers are pushing a “default yes” to higher-density housing around rail stations, a stronger brownfield-first approach, and a more proportionate regime for medium-sized sites. The reforms also include simplifications to Biodiversity Net Gain (BNG) for smaller schemes, and potential exemptions from the Building Safety Levy for sites of 10–49 homes.
For brokers and developers, however, the message from funders is clear: don’t confuse political messaging with an overnight improvement in planning risk, lender appetite or execution.
‘Default yes’ doesn’t equal default funding
Justin Trowse, managing director at Mortimer Street Capital, said the consultation “talks a strong game” on SMEs – but warned that the real test is whether planning outcomes become more bankable.
“The NPPF consultation talks a strong game on supporting SME developers, but the funding landscape will only materially improve if planning outcomes become more predictable and fundable,” he said.
“A ‘default yes’ in policy doesn’t automatically translate into certainty of funding, faster progress through lender pipelines, or smoother completions — particularly where local authority interpretation and resourcing remain inconsistent.”
Trowse expects increased focus on higher-density, transport-linked schemes as policy tilts towards building around stations and in existing urban areas. But those schemes are rarely straightforward.
“We expect increased focus on higher-density, transport-linked schemes, but these are typically the most complex to underwrite and deliver,” he added.
“For brokers and developers, the key message is not to mistake policy ambition for improved execution: prioritise funders that genuinely understand land and planning risk, maintain conservative structures, and build realistic timelines into funding strategies.”
HTB: policy ‘directionally supportive’ – but planning capacity is still the choke point
Hampshire Trust Bank (HTB) views the proposed changes as broadly positive for SMEs – especially where schemes align with existing towns, cities and infrastructure – but is similarly cautious about how far the reforms can reach without more planning capacity.
Neil Leitch, Managing Director of Development Finance at HTB, said: “The proposed changes to the NPPF are directionally supportive for SME housebuilders, particularly where development can be aligned with established urban areas and existing infrastructure. Clearer policy intent can help improve confidence earlier in the process, which matters for smaller developers who are typically more exposed to planning delay and uncertainty.”
However, he stressed that the impact of the ‘default yes’ around rail is likely to be uneven across the country.
“There may be increased interest in higher-density and rail-linked schemes, but the impact will be highly location-specific,” Leitch said. “In some established urban centres, proximity to rail infrastructure can help unlock development. In many regions, however, historic rail closures mean these proposals will make little practical difference. Policy support alone cannot compensate for infrastructure that no longer exists.”
For Leitch, the “more fundamental constraint” sits squarely within local planning departments.
“Capacity and resourcing within local authority planning departments continue to be the single biggest determinant of delivery,” he argued. “Without more planning officers and a more pragmatic, can-do approach to decision-making, even well-intentioned reforms are unlikely to translate into materially faster housing delivery.”
Brownfield, greyfield and the risk of repeating old mistakes
Alongside the push around rail hubs, the consultation doubles down on brownfield and greyfield land – coupled with BNG reforms and an explicit focus on higher densities.
Leitch cautioned that relying too heavily on previously used land could simply replay some of the tensions seen under earlier policy regimes.
“There is also a risk in assuming that brownfield and greyfield development will resolve housing supply challenges in isolation,” he said.
“Previous policy approaches pushed development towards previously used land, often bringing remediation costs that reduced viability unless higher densities were achieved. In practice, that frequently meant flats and townhouses, as they occupy smaller footprints. While those schemes met policy objectives, they did not always align with local demand or buyer preferences.”
For lenders, that mismatch between policy-driven typologies and genuine demand can be critical for exit risk and valuations – particularly in secondary and tertiary locations.
What it all means
Both Trowse and Leitch converge on a similar message for intermediaries and borrowers: realism on planning timelines and risk remains essential, whatever the rhetoric from Westminster.
Leitch said: “For brokers and developers, the message is realism. Planning timelines and risk are unlikely to change overnight, and funding still needs to be structured around how schemes actually progress on the ground, including planning conditions, phasing and potential delay. Where schemes reflect genuine demand and are structured with flexibility from the outset, lenders remain keen to support experienced SME developers delivering viable projects.”
Trowse echoed the need for cautious structuring and funder selection, stressing that the underlying dynamics of planning risk have not yet shifted in a way that justifies aggressive assumptions.
For the development finance market, the reforms may, over time, help unlock more opportunities – particularly in well-connected urban locations where policy, infrastructure and demand are aligned. But until local authority capacity, consistency and decision-making speed materially improve, planning risk will remain priced much as it is today.
