Landlords and developers may soon find it easier to convert commercial, business and service space to residential property.
Today, the Government’s consultation on the introduction of a new Permitted Development right ends, that would allow the change of use from Class E (commercial, business and service uses) to Class C3 (residential uses).
With the pandemic transforming our high streets, converting a commercial property to residential units will gather momentum in the next couple of months. Though how easy is it to find commercial bridging loans for conversions? Here are a few key considerations.
Converting a commercial property even under permitted development rights has its complexities. Therefore, watch out for lenders offering long term solutions after works have completed: minimal exit and extension fees, and small to no early repayment charges.
At present, many lenders specialising in commercial bridging loans for heavy refurbishments offer up to 70% LTV. However, providing additional security with sufficient equity will enable larger LTVs in some cases. In addition, a few lenders may be able to cover 100% of the build costs in stages to keep borrowing costs down.
In most cases, conversion finance lenders expect borrowers to have experience with investment properties similar in complexity and size.
What is for sure, borrowers will need a clear and viable exit strategy, from selling or renting out to refinancing with another lender. Bearing in mind the uncertainties that lockdown brings this implies a realistic measure not just of project costs but exit time scales. Borrowers who show a strong repayment plan with a back up plan will go a long way.
Note: This content is for illustrative purposes only and does not constitute financial advice.
To discuss your individual case, please get in touch.