Property Conversion Finance: What Lenders Fund and What They Ask For

Conversion finance funds the gap between buying a building and finishing it as something else. Commercial space turned into flats, a large house split into units, outbuildings brought into use. The works change what the building is worth, and that change is what the lending is built around.

It is not the same as a standard commercial mortgage, because at the point you need the money the building does not yet support the value you are borrowing against.

How the funding is structured

Most conversion facilities are short term, usually arranged in months rather than years, and released in stages rather than all at once. You draw an initial amount to buy the property, then further amounts as the works hit agreed points.

Those stages are normally signed off by a monitoring surveyor acting for the lender, who visits and confirms the work is done before the next drawdown is released. That is the part people underestimate. Your cash flow follows the surveyor's visits, not your invoices, so the build programme and the funding schedule need to line up.

Interest is usually charged only on what you have drawn, and is often rolled up or retained rather than paid monthly, so the project is not servicing debt while it earns nothing.

How lenders size it

Two numbers do the work. The first is loan to cost, meaning the facility against the purchase price plus the build costs. The second is loan to gross development value, meaning the facility against what the finished scheme is worth.

Lenders set limits on both, and the tighter of the two is the one that binds. A scheme can look comfortable on value and still be constrained because the lender will not fund that proportion of the cost. The limits vary a good deal between lenders, which is why the same scheme gets materially different offers.

Planning, and why it decides the price

Whether you already have permission changes everything. A scheme with full planning consent in place is a different proposition to one relying on a prior approval that has not been applied for yet, and the terms reflect that.

Some commercial to residential conversions in England can proceed under permitted development rights rather than a full planning application, subject to prior approval and a set of conditions on the building and its previous use. It is quicker, but the conditions are specific and a scheme that looks eligible sometimes is not. Get that confirmed before you budget on it, because a lender will want it confirmed too.

The exit comes first

Lenders decide on the exit before they decide on the works. There are two, and you should know which is yours at the outset.

Sell the finished units. The lender will want a view on values and how long a sale realistically takes in that location, not the optimistic version.

Keep and refinance. The facility is repaid by a longer term mortgage once the building is complete and let or occupied. Lenders increasingly want that refinance broadly evidenced at the start rather than assumed.

A scheme with a vague exit gets priced as a risk even when the build itself is straightforward.

What you will be asked for

Expect to provide a schedule of works with costs, the planning position, a build programme with realistic dates, details of the contractor and what they have completed before, and your own track record on similar projects. Alongside that, the usual company information and accounts.

First time developers do get funded. It tends to cost more, and lenders lean harder on the contractor's experience when yours is lighter.

If the project is a part of your own home

Worth saying plainly: if you are converting a garage or a loft at the house you live in, conversion finance is the wrong product. The arrangement costs and the surveyor's involvement are built for schemes where the works change what the building is worth commercially. Get in touch anyway and we will point you the right way rather than selling you something that does not fit.

Getting a realistic number

Because the two sizing limits and the planning position move the answer so much, an indicative figure is only useful once someone has looked at the actual scheme. Send us the purchase price, the works budget, the planning position and the end value you are working to, and we will come back with what is genuinely achievable across our panel rather than the best case.