Why conversions are popular
Commercial to residential conversions account for a significant proportion of UK development finance deals. They're attractive for several reasons: lower build costs than new-build (the structural shell exists), faster programme (12–15 months typical), often achievable under Permitted Development without full planning, and strong demand for the resulting homes in urban areas where commercial buildings are being vacated.
Permitted Development rights (Class MA)
Class MA of the General Permitted Development Order allows conversion of buildings in Use Class E (offices, shops, restaurants, cafes, light industrial, gyms, health centres, nurseries) to residential (Use Class C3) without full planning permission. Instead, you apply for Prior Approval, which the local authority must determine within 56 days.
Prior Approval considers: flooding risk, contamination, transport and highway impacts, noise from commercial premises, and the provision of adequate natural light. It does not consider housing need, design quality, or impact on the commercial area — which is why many conversions succeed under PD where full planning might be refused.
Limitations: PD rights don't apply in Conservation Areas with Article 4 directions, to Listed Buildings, to buildings over 1,500sqm (without prior commercial use of at least 2 years), or where local authorities have specifically removed PD rights.
Financing a conversion
Most specialist development finance lenders fund conversion projects. The financing structure is similar to new-build:
- Day-one advance: Covers the purchase price of the commercial building (typically up to 65–70% of current value)
- Build facility: Drawn down in stages as conversion work progresses (typically 100% of build costs within the overall LTC limit)
- Interest: 7.5–12% rolled up
- LTC: 70–85% of total costs
- LTGDV: 60–65% of completed residential value
Lenders generally view PD conversions positively because the planning risk is lower than full planning applications. However, they want to see evidence that the building is structurally suitable for conversion and that costs have been properly assessed.
Key considerations for conversion deals
- Structural assessment: Not all commercial buildings are suitable for residential conversion. Floor-to-ceiling heights, structural grids, and building services all affect feasibility and cost.
- Building regulations: Conversions must meet current Building Regulations for fire safety, sound insulation, energy efficiency, and accessibility — even under PD. These costs can be significant for older buildings.
- VAT: Conversions of commercial buildings to residential may qualify for the reduced 5% VAT rate (vs 20% standard rate), significantly improving project economics.
- CIL exemption: Some conversions under PD are exempt from Community Infrastructure Levy, reducing costs further.
- Contamination: Former industrial or commercial uses may have contamination issues requiring remediation. Budget for a Phase 1 environmental assessment as a minimum.
How to package a conversion deal
Upload your Prior Approval or planning permission, structural survey, cost schedule, and comparable sales evidence to Assesr. The AI generates a credit paper that specifically addresses the conversion-specific considerations lenders assess and matches your deal to lenders who actively fund conversions. 60 seconds, 50+ lenders, 0.5% on drawdown.