Conversion Development Finance

Conversion finance is a property development loan that pays for an existing building and the works to turn it into homes. The lender advances part of the purchase price on completion, then releases build funding in stages as its monitoring surveyor signs off each phase. Interest is usually rolled up and repaid with the loan when you sell or refinance.

Most development lenders won't fund a purchase before planning permission is granted. If you need to secure the building while an application runs, a short-term bridging loan can buy it, then refinance into a development facility once consent is issued. Bridging loans cost more each month, so keep that stage as short as the planning timetable allows.

• Purchase: an initial advance against the building, with your equity in first
• Works: staged drawdowns released against monitoring surveyor sign-off
• Completion: interest rolls up until the units are sold or let
• Exit: sales proceeds or a refinance repay the facility in full

Lenders draw the line by what the works involve, not by what you call them. If you're changing the use, altering the structure, creating new units or the works need full planning and building control sign-off, most lenders treat it as development. Expect a monitoring surveyor and staged drawdowns.

A heavy refurbishment loan can be cheaper and quicker where the building is already residential, the layout stays largely intact and the works can be costed tightly. It's usually sized on current value plus works rather than on GDV, so it rarely suits a derelict chapel worth little today.

• Change of use with new units created: development facility
• Structural works, new floors, mezzanines or extensions: development facility
• Existing dwelling, internal reconfiguration, no planning needed: heavy refurb
• Cosmetic works and re-letting: light refurb or bridging

Barns bring access, services and ecology questions. Churches and chapels bring burial grounds, restrictive covenants and tall single volumes that are expensive to subdivide. Mills bring flood risk and sheer scale. Each type has a known set of surprises, and the lender's surveyor will go looking for them.

Pubs have been sui generis in planning terms since September 2020, so any change of use needs a full application. Many local plans also protect pubs, and a site listed as an Asset of Community Value faces a community bid window before it can be sold. Raise both before you agree a price.

Your builder's services and the materials they fit can be charged at the 5% reduced rate where the work turns a non-residential building into dwellings, changes the number of dwellings, or creates a house in multiple occupation. Professional fees stay at 20%. The contractor needs your evidence that the work qualifies.

If you're the person converting a non-residential building and you sell the freehold or a lease over 21 years, that first sale can be zero-rated, which lets you register and reclaim the VAT you paid. Approved alterations to listed buildings have been standard-rated since October 2012. Our VAT guide for developers sets out the detail.

Works that affect the character of a listed building need listed building consent as well as planning, and carrying them out without it is a criminal offence. Lenders won't release funds against works that aren't consented, and their solicitor will check every condition attached to both consents.

Pre-commencement conditions often require method statements, joinery details or a programme of archaeological recording. Discharge them before you draw down, not during. If a conservation officer later asks you to retain a feature your cost plan assumed would go, the extra cost comes out of your contingency, not the lender's facility.

Lenders want to know how the conversion finance will be repaid before they approve it. Selling the finished homes is the most common exit. If you'd rather keep them, the completed units can be refinanced onto buy-to-let mortgages once building control has signed off, and the rental income then services the long-term debt.

A refinance exit is tested against buy-to-let lending criteria and rents at the time, not the figures you hoped for when you bought the property. A converted pub with a commercial ground floor, or a block let as a single investment, usually needs commercial mortgages instead. If sales are slow, development exit finance can carry the units for a few months.

• Sell the converted homes on the open market
• Refinance completed homes onto buy-to-let mortgages and hold them
• Refinance a mixed-use or single-let building onto a commercial mortgage
• Use development exit finance to cover slow sales or lettings