Brokers see rise in FTB commercial-to-resi conversion interest

  • 09/12/2021
  • 0
Brokers see rise in FTB commercial-to-resi conversion interest
Brokers are seeing heightened interest from first-time developers and first-time buyers looking to convert commercial properties to homes following changes to permitted development rights and a rise in vacant premises during the pandemic.


Permitted development rights allow people to extend or renovate properties without the need for a full planning application.

The government applied changes to the rights by expanding one of the classes to allow shops, offices, restaurant, cafes, health services, nurseries, gyms and leisure properties to be converted to residential properties.

Restrictions apply, for example the property must be vacant for three months prior to applications, it must have been in commercial use for at least two years and have a maximum floor space of 1,500 square metres.

There has also been a rise in vacant commercial properties and properties occupied by firms in financial difficulty, increasing the number of conversion opportunities.

Nick Mendes, mortgage technical manager at John Charcol, said: “You would expect your traditional landlord and developer to take up this opportunity. But with the cost of properties increasing, available homes lacking features such as a home office, and restrictive affordability criteria the opportunity to refurbish a used site is becoming more popular.”

He said brokers were seeing more first-time buyers expressing interest in development finance as well as auction purchases, with a specific focus on pubs or other hospitality establishments that have struggled to trade over the past few years and are vacant.

Mendes added that due to the growing change in habits around spending and socialising there had been a decline in the high street with more vacant units. He said that this would be “another area of attention” for landlords, especially for those wanting to diversify away from commercial tenants.

He added that lenders may also be looking to reduce commercial coverage, so might want to diversify into residential lending.

Mendes said: “With the focus now on sustainable housing and using current property stock as the basis for new homes, as criteria and confidence grows within both the property and job market, we expect to see more inquires.”

Hasan Ecki, marketing manager of Hank Zarihs Associates, said the firm has also been receiving an influx of new clients converting office blocks to residential properties under permitted development schemes.

He said: “We assume the reason for the influx is due to the pandemic. More office blocks are available for sale due to more businesses offering the option to work from home and therefore opportunistic real estate developers are converting them into residential units.

“On average around 50,000 new homes need to be built in London each year to meet the increasing demand of new residents in London, which is around 100,000.”

Ecki said that this would be a “long-term trend” which could be profitable for developers as businesses adapted to working from home full time creating more opportunities.

Challenges for first-time developers

Ecki said that it could be challenging for first-time buyers to secure funding.

He said: “The number one issue for first-time developers will be getting finance for their first project. The reason for this is because newer developers are seen as a risker option to lend money to as they don’t have experience. Lenders want to make sure their investment is safe.”

He added: “New developers can gain an advantage if they partner up with a more experienced developer. Alternatively, they can provide additional charges to help ease the lenders nerves.”

Mendes said that lenders examined the credibility of a deal on different levels, including client income, how they will live during the development and if there was a reasonable exit strategy.

Lenders will require a schedule of work to outline the stages involved in the development, evidence of a contingency fund, the name of the builder and the timescale for the project.

He added the gross development value would be a “key point” for many lenders, with many looking for a minimum of 20 to 25 per cent profit.

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