Lenders back planning reform, but warn brokers not to expect default funding
The government’s latest overhaul of planning rules promises to “go further than ever before” in delivering 1.5 million homes this Parliament. Ministers are consulting on reforms to the National Planning Policy Framework (NPPF) that include a “default yes” to higher-density housing around rail stations, a strengthened brownfield-first approach, more proportionate rules for medium-sized sites, simplified Biodiversity Net Gain (BNG) requirements for smaller schemes, and potential Building Safety Levy exemptions for developments of 10–49 homes.
While the direction of travel has been broadly welcomed across the development finance and housebuilding sectors, lenders and industry bodies caution that policy reform alone will not materially reduce planning risk or unlock delivery unless it translates into more predictable outcomes on the ground.
‘Default yes’ doesn’t equal default funding
For development finance providers, the key issue is whether planning outcomes become sufficiently consistent and reliable to support underwriting and execution.
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.
“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 policy changes to drive increased interest in higher-density, transport-linked schemes, but said these are often among the most complex to finance and deliver.
“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.”
SMEs: proportionate reform helps – but won’t reverse long-term decline
The Home Builders’ Federation (HBF) views the proposed “default yes” around rail stations, higher densities and more proportionate treatment of medium-sized sites as a positive step, particularly for SME builders. However, it cautions that the reforms alone will not transform housing delivery.
Steve Turner, Executive Director of the HBF, said:
“Clearly on its own, this isn’t going to move the dial, but it is a very positive step that could bring forward land in suitable locations for development,” he said.
For smaller housebuilders, Turner said the reforms could help make more sites genuinely deliverable – provided that policies are applied pragmatically and schemes remain financially viable once all costs are taken into account.
Alongside the planning changes, the consultation proposes simplifying BNG requirements and exempting schemes of 10–49 homes from the Building Safety Levy. Turner said these measures are directionally welcome, but insufficient to address the structural pressures facing SMEs.
“Over recent decades the number of SME house builders has plummeted, mainly as a result of the increasingly complex, bureaucratic and costly planning and regulatory requirements,” he said.
“Much more needs to be done to assist SME house builders and support them to play their part in increasing housing supply, but this potential reduction in costs would be welcome.”
Planning capacity is still the choke point
Hampshire Trust Bank (HTB) also views the NPPF proposals as broadly supportive of SME development, particularly where schemes align with existing towns, cities and infrastructure. However, it believes that the effectiveness of the reforms will ultimately depend less on policy wording and more on the capacity of local planning authorities to implement them.
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.”
Leitch cautioned that the impact of the ‘default yes’ around rail stations will vary significantly by location.
“There may be increased interest in higher-density and rail-linked schemes, but the impact will be highly location-specific,” he said.
For HTB, that unevenness is compounded by constraints within local authority planning teams.
“Capacity and resourcing within local authority planning departments continue to be the single biggest determinant of delivery,” Leitch 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.”
Viability, taxation and mortgage access still shape supply
While the planning reforms broadly track what the industry has been calling for, Turner cautioned that they do not address the full range of constraints currently holding housing supply back.
“The planning changes the Government has introduced since the election are very positive and are largely what the industry has called for. However, housing supply is not only determined by planning policy and Ministers now need to tackle the other constraints industry faces,” he said.
“An increasing number of sites are no longer viable to develop as a result of the myriad of new policy costs and taxes that have been layered on to development over recent years, and Government has to reduce this cost burden such that more sites are viable for development.”
Turner also highlighted demand-side pressures, particularly around mortgage availability and the absence of targeted support for first-time buyers.
“Government also has to tackle the lack of affordable mortgage lending that is preventing young people in particular from stepping on to the property ladder, and so suppressing demand for new homes,” he added. “It is the first time in 60 years there is no support scheme in place for buyers and unless demand can be stimulated, such that industry has the confidence to invest in new sites, supply will continue to flatline.”
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.
“Previous policy approaches pushed development towards previously used land, often bringing remediation costs that reduced viability unless higher densities were achieved,” he said. “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 means for developers and funders
Across the development finance market, the message is consistent: planning reform may help at the margins, but realism on timelines, risk and viability remains essential.
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.
Taken together, the reforms may gradually unlock opportunities in well-connected urban locations where policy, infrastructure and demand align. However, without parallel progress on planning capacity, scheme viability and buyer affordability, planning risk is unlikely to be repriced significantly – and housing supply is more likely to remain constrained than transformed.
