Utilising Specialist Finance to Overcome Commercial Conversion Challenges

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We’re struggling to find solid answers for our housing crisis. There is simply not enough housing to meet demand in either the buying or renting market.

One potential option we have for this problem though is converting commercial properties. There are many commercial properties in the UK which are underutilised, or entirely vacant. Converting some of these properties could deliver much needed stock to the residential market.

Many property investors already seem to have caught onto this. Between 2021 and 2023, there was a 63% rise in the number of commercial to residential property change of use applications in England.

Conversions can add a strategic element to any property investment portfolio. But they can come with unique challenges.

Structural issues that need to be addressed

Some property investments may purchase a commercial asset to convert, without giving much thought to the next steps. There may be unexpected challenges.

Unfortunately, some commercial properties may simply not be suitable for a conversion. Some lack appropriate ventilation, cooling systems, external shading, and other elements needed to accommodate a residential set up. A property investor may only realise all this at the start of their conversion journey.

They may have bought an empty office, only to fall at the first hurdle. Landlords may specifically be at risk here as delays can prevent them from securing income from tenants. One of the common issues we’re seeing at the moment is conversions being held up by plumbing issues, as the original commercial building (usually an office) wasn’t designed to accommodate multiple kitchens and bathrooms.

Fortunately, our Permitted & Light Development Bridging Loans can help upgrade a commercial property’s plumbing system, and get it ready for a conversion. But, we would need to ensure the viability of the plans before we’d issue any funds.

To start with, we’d want to comb through a schedule of works, which would break down exactly how our funds would be utilised. Also, we’d need to see clear evidence that these plans would fix the plumbing issue for the long-term, and not be a temporary solution.

Internally, we’d also work closely with the valuers involved. We’d determine how much in rental income the borrower would likely be able to generate once the works were completed. This would allow us to determine when the borrower would likely secure tenants, and how they could ready themselves for the exit strategy.

Potential for the years ahead

Despite the challenges in converting commercial properties on a broad scale, property investors appear undeterred in their plans. By the end of 2024, the number of change of use applications may exceed 2023’s figure by around 20%, according to Direct Line.

Moreover, with the government’s lofty plans of having 1.5 million new homes built within the next few years, there may be incentives to deliver as much residential stock as possible. Conversions, refurbishments, and renovations may come to the forefront over the coming years.

We can help with this on multiple fronts at Market Financial Solutions. We have options for purchases, refurbishment finance, and even development exit funding at the ready. No matter where property investors are in their journey, we’ll provide them with optionality.

FAQs

Can I access finance if I’m converting a commercial property into residential units?

Yes, we can support commercial-to-residential conversion projects, as long as appropriate planning permission is in place. We understand that these schemes often need speed and certainty, so we structure bridging loans that align with your timeline and refurbishment plan. Our flexible underwriting considers various aspects like rental demand, exit strategy, and project viability.

What makes your lending suited to light or complex conversions?

We specialise in funding both straightforward internal refurbishments and more extensive conversions. Our in-house team assesses the full scope – from planning and structural surveys to refurbishment schedules – to ensure the loan is structured accurately and funds are released in line with your objective.

Do you require tenants to be in place before funding approval?

Funding doesn’t depend on having tenants secured before drawdown. We evaluate rental demand and exit strategy alongside planning and works schedules. As long as your projected rental income is realistic and the exit path clear, we’re comfortable providing funds even before tenants are signed up.

How do market trends influence your support for conversion projects?

With housing supply under pressure, many investors are converting underused commercial properties to meet housing demand. This trend is increasing competition among both buyers and lenders. Specialist funding like our bridging and conversion loans help clients act fast and capitalise on growing demand by securing properties with clear residential planning potential.