Converting Commercial to Residential

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Home » Mortgages » Converting Commerical to Residential

Converting from Commercial to Residential

Converting commercial properties into residential use is an opportunity area with property developers who are developing small commercial units such as hairdressers and betting shops, into residential use, or on a larger scale converting office blocks into residential apartments. Here we look at how this can be achieved and what is involved.

Why convert commercial units into residential?

High street shops are on the decline as the footfall has decreased with the move to online shopping, which has resulted in many units being unoccupied. Additionally with the move of shops to more retail parks where everything is under one roof this has left the traditional high street with minimal visitors.

Developers see that these commercial units as an opportunity for them to add value, convert to a residential dwelling which is high in demand. Additionally, local authorities are more likely to allow planning permission for the conversion as more residential homes are urgently needed for people.

Disused office blocks are also a great opportunity to developers as they can be an eye sore on the community and provide the much needed residential space to the community.

What lenders provide finance for these conversions?

High Street lenders generally shy away from this type of lending, so there are many specialist lenders which would be willing to consider the project. These specialist lenders are available through mortgage and commercial finance brokers.

Typically you will have to put down a deposit of 30%, however if you have additional security to put into the deal a lender maybe willing to provide 100% of the purchase price and a 100% of development works.

What do lenders look for in an application?

  • Security & Project – They will have a good look at the security, its location, the projects overall feasibility.
  • Experience – Has the applicant a good level of experience in converting properties? Do they have a property portfolio? – The lender will want to know about their experience so they can be confident that the project will be run to plan alternatively if the applicant does not have experience, do they have a project manager who has the required experience who will manage and deliver the project?
  • Credit Profile – If the client has a good credit profile this will help, however if they have a bad credit profile it will limit the lenders available for the funding, however there may still be lenders available.
  • Exit Strategy – What is the long term plans with the property? Will it be sold or does the developer plan to refinance and let it out long term? A mixture of both is also an option.

What are the typical costs and fees when converting commercial to residential?

Here is an overview of potential costs payable:

  • Architect – You will need an architect to draw up plans outlining the proposal which can be submitted to the local authority when applying for planning permission.
  • Planning Permission – You will need to approach the local authority to gain permission to convert the property use.
  • Conversion costs – You will need to get an experienced builder to price the whole project and build in a contingency fund just in case.
  • Finance Fees – When looking to raise finance you will have to pay many fees for example – a valuation will be needed and the cost for this would be payable upfront – The cost this all depends upon the property valuation.
  • Lender Arrangement fees – These can range from 1% to 2% all depending upon the lender and the overall development project.
  • Interest rate for the finance – The rate charged all depends upon the project.
  • Legal Fees – These will be payable upfront and on completion.

Other costs may be payable as these projects can range vastly.

What sort of documents do lenders typically require?

Typically for an application the lender would want the following:

  • Credit Report – Would need to be from a credit agency such as Experian or Equifax.
  • Planning Permission – Full details would need to be provided of what planning permission has been granted.
  • CV – History of the applicants previous projects or if he is using a project manager, what is their experience?
  • Lender Application Form – This would contain full details of the client, the security and the finance required.
  • Quotation of Works – Full costing of the project, timeframe for each phase of the conversion and contingency planning.

What sort of rates are offered for converting commercial to residential?

Every project is unique, different time scales, different funding requirements, different experience etc., so every project is priced individually.

Why use a broker to find you funding?

Many High street lenders will not provide the funding you need for these conversion projects, so therefore you will need to seek more specialist lenders and they generally offer their products through commercial brokers. Using an experienced broker will save you lots of time, help you get the most suited deal and they will liaise between you and the lender to process the application.

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Converting Commercial to Residential FAQ’s

Many commercial units are unoccupied and as there is a great demand for residential accommodation converting these units makes sense to experienced developers.

The costs can vary from project to project. By working with an experienced commercial broker they will be able to help provide you with a quotation tailored to your project which will outline all potential costs.

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