With the residential property market showing no signs of slowing, you may be eyeing that commercial space, wondering if you can convert it into a residential gem.
It’s certainly an enticing prospect, especially when there’s potential for a juicy jump in value. But before diving in, it’s worth asking: What’s actually allowed under planning rules? And more importantly, how do you avoid rookie errors that cost time, money, and possibly your sanity?
We recently hosted a seminar with our in-house commercial property expert, Louis Theed, who tackled the big questions investors are asking. Here’s a handy roundup of the key takeaways:
What warranties or building guarantees will lenders expect after the conversion?
Most lenders will require a new-build warranty – typically lasting 6 to 10 years (10 is the standard). Think of it as the safety net for your new shiny project. There are several reputable providers including ABC Checkmate and NHBC, but your architect can help you choose the right one. Just make sure the warranty covers everything you are doing.
Should I purchase a property in limited company or personal name when considering doing a conversion project?
It really depends on your personal situation, so make sure you speak to the right expert – usually your accountant or a tax adviser. It all comes down to your wider income and how everything fits together.
If you’re thinking about moving a property from your own name into a limited company, don’t rush in. It can trigger tax bills and legal fees. Unpicking it later is a nightmare! So, getting proper advice from the start can save you a lot of hassle (and money!).
What projects give the best return and what are the best projects to start with?
Semi-commercial conversions are a solid option – part-residential, part-commercial. Why? They can be simpler to get through planning. Especially if permitted development rights are on your side. Why bother? Two big reasons: steady income and added value.
The commercial bit usually comes with a nice, long lease (think 5-10 years), and the tenant picks up the tab for most of the maintenance, so you can pretty much put your feet up.
Then there’s the residential side where you usually boost the value. If the building ends up mostly residential (in value and space), lenders might roll out the red carpet with better mortgage rates – often cheaper than if it were mostly commercial.
Is it advisable to have a letting agent for a commercial tenant?
It all comes down to the type of property, the tenant, and what kind of business you are running. On the residential side, most people use a letting agent – especially if the property isn’t round the corner.
Our professional landlords almost always do. These days, being a landlord means jumping through more hoops than ever, so it helps to lean on the pros. They know the rules inside out – let them deal with the headaches while you get on with everything else.
Is planning permission required before I can draw down the funds?
Yes, that’ll need to be in place before the funds are released. Some lenders even require it at the application stage, since they underwrite the deal based on the planning documents.
Do I need experience to take on a conversion project?
Not necessarily, but the lender’s not going to let just anyone swing a hammer. They’ll want a properly insured, experienced contractor, and probably do a bit of due diligence on them too.
Most investors have already dipped their toes in, done a refurb or two, maybe grabbed a deal at auction, and now they’re ready to level up. That kind of experience definitely counts and can help smooth the way.
Can you explain the differences in rates between light refurbishment and the heavy conversion funding?
Light and heavy refurbishments are totally different products. Light is your basic cosmetic stuff; heavy is for when you’re ripping out walls and making big changes. Heavy usually costs more, and every lender has their own take on what counts as what.
The best move is to share your schedule of works and project details with your broker upfront, so they can recommend the right product. Get it wrong, and you could end up on a pricier deal later – and no one wants that surprise.
Are there any restrictions based on location or asset, for example, care homes or pubs?
No. We can look at all sorts, even pubs. In fact, pubs can be cracking opportunities. Sure, lots are closing, but they often come with decent land and loads of potential for conversion.
The key is to always have a Plan B. If a property’s a bit quirky or needs a lot of work, lenders might play it safe and drop the loan-to-value slightly, say from 70-75% down to around 65%. But don’t let that put you off. There’s opportunity everywhere if you know where to look.
If you are still curious about converting commercial to residential, here is the full webinar recording for you to grab a cuppa and dive deeper into.
And if you fancy a chat about any upcoming projects, feel free to reach out to us @hello@propp.io
Abbie Dickson-Davies
