Commercial to residential conversion finance for shops, pubs, barns and upper floors
Commercial to residential conversion finance is short-term lending, usually a bridging loan, that funds the purchase of a commercial building and the works to turn it into homes, repaid by selling the finished units or refinancing them. It covers a wide range of buildings: empty shops, upper floors above retail, former pubs, agricultural barns, small offices, banks and light industrial units.
We arrange this type of bridging finance across a broad panel of lenders. This page focuses on how the planning route you choose shapes the lending, how lenders value a building before and after conversion, and which exits they accept. If your building is an office block, our office to residential bridging finance page goes deeper on office-specific issues.
Key takeaways
Commercial to residential conversion finance usually combines a day-one advance on current value with staged works funding capped against GDV.
Class MA prior approval suits qualifying Class E buildings; pubs, barns and listed buildings usually need other routes.
Lenders release works money once consent is in place, so planning delays extend the term and cost.
If you or a family member will live in a unit, the loan may be regulated and must go to an FCA-authorised firm we introduce.
Exit by unit sales, refinance of let flats, or a mix, with time for sales built into the term.
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Which buildings can you convert with commercial to residential conversion finance?
Lender appetite depends on the building, its location and how marketable the finished homes will be. Typical schemes we see include:
Shops with flats above: converting the ground floor retail unit into a flat, or adding further flats in the upper floors. These are often semi-commercial before works and fully residential after.
Upper floors over retail: unused storage or office space above a shop turned into flats, with the shop retained. The finished building stays semi-commercial.
Pubs: closed or failing pubs converted to houses or flats, sometimes keeping a smaller trading area. See our pub bridging loans page for trading-asset issues.
Barns and agricultural buildings: conversion to dwellings, where lenders look closely at access, services and resale demand in rural locations.
Offices, banks and light industrial units: often suitable for Class MA prior approval if the use class qualifies.
Full planning permission or Class MA: how does the planning route affect the finance?
The planning route decides when lenders will commit works money and how much risk they see.
Point
Class MA prior approval
Full planning permission
Applies to
Buildings in Class E use for at least 2 continuous years (England)
Any building, including pubs, barns and sui generis uses
What is assessed
Specific matters: transport, contamination, flooding, noise, natural light, fire safety, loss of certain uses
The full scheme against local planning policy
Exclusions
Listed buildings; restricted in some protected areas
Listed building consent needed separately where relevant
Design control
Limited, external changes may need separate permission
Wider control over design, density and external works
Lender view
Well understood if approval is granted and conditions are clear
Well understood; lenders check conditions and any Section 106 obligations
Since 5 March 2024 Class MA no longer has the earlier 3-month vacancy requirement or the 1,500 square metre floorspace cap. Our Class MA permitted development guide explains the rules. Planning details vary, so confirm your route with a planning consultant before you commit.
If you are buying before consent is in place, lenders will lend on the current commercial value only. Our bridging loan for planning permission page covers that stage.
How is the bridging loan structured for purchase and conversion works?
Most conversion bridges combine a day-one advance with a works facility:
Day-one advance against the current value of the building as a commercial property, commonly up to 70% to 75% on a first charge for standard stock.
Works facility released in stages as a monitoring surveyor confirms progress, usually in arrears.
Overall cap on the total facility, including interest and fees, as a percentage of the gross development value (GDV) of the finished homes.
Interest retained or rolled up, so there are no monthly payments while the building is a site.
For example (illustrative): a former bank bought for £600,000 with £350,000 of works to create six flats, valued at £1,400,000 on completion. The lender might advance 70% of the purchase (£420,000) plus the full works and rolled interest, keeping the total facility within its GDV cap. You would fund the rest of the purchase, costs and the first works stage.
Whether the works are light or structural changes the lender pool. Our refurbishment bridging loans page explains staged drawdowns and monitoring in more detail.
Have a deal in front of you?Send us the property and the numbers. We will tell you quickly whether it is fundable.
How much does it cost to convert commercial to residential?
Build costs vary too much by building, specification and location to quote a meaningful figure. The items that drive the budget are:
Fire safety and separation between flats and any retained commercial use.
Sound insulation and thermal upgrades to meet building regulations for dwellings.
New services: separate utility supplies, drainage and meters per unit.
Windows and natural light, often the hardest issue in deep-plan buildings.
Professional fees: architect, planning consultant, building control, structural engineer.
Contingency, commonly around 10% of the works budget.
On the finance side, expect monthly interest, an arrangement fee of typically around 1% to 2% of the loan, valuation, monitoring surveyor and legal fees. Lender pricing improves with lower leverage and a clear planning position. Model your figures with the LTV calculator and see current pricing guidance.
Is it hard to change a property from commercial to residential?
It is straightforward when the building qualifies for Class MA and prior approval is granted, or when the local authority supports housing on the site. It becomes harder when:
The building is listed or in a protected area where permitted development is restricted.
The council wants to protect the existing use, such as a pub or a ground floor shop in a primary retail frontage.
Natural light, noise from neighbouring uses or flood risk count against the scheme.
An Article 4 direction removes permitted development rights locally.
From a lending view, the difficulty shows up as risk to the timeline. Lenders want to see consent in place before they release works money, so planning delays lengthen the bridge and increase interest. A realistic term with contingency matters more than a low headline price.
Who lives in the finished units, and is the loan regulated?
Bridging secured on property you will sell or let to unrelated tenants is for business purposes and is unregulated, which we arrange directly. The position can change if you, or an immediate family member, will live in the building.
If a flat in the converted building will be occupied by you or a close family member, the loan is likely to be a regulated mortgage contract.
Regulated bridging must go to a firm directly authorised by the Financial Conduct Authority. We introduce those cases to an authorised partner.
We are not directly authorised by the Financial Conduct Authority, so we cannot arrange a regulated loan ourselves.
This is common on shops with flats above, where the owner plans to live upstairs. Our semi-commercial bridging loans page covers how lenders treat mixed buildings. Tell us at the outset if anyone connected to you will live in the property.
What exit strategies do lenders accept for conversion schemes?
Lenders underwrite the exit as closely as the works. Common exits are:
Sale of the units on the open market, supported by local comparable evidence and realistic sales timescales.
Refinance onto residential investment or portfolio mortgages once the flats are complete and let, or a single block refinance where the lender takes the whole building.
Part sale, part refinance, selling some units to clear part of the bridge and holding the rest.
Semi-commercial or commercial mortgage where a shop or commercial unit is retained alongside the flats.
Where the scheme is large enough that sales will take time, a development exit facility can refinance the bridge once works are complete. Build the sales or letting period into the term from the start.
Unregulated commercial and investment bridging is arranged directly. Any case where the security includes a home you or an immediate family member occupies, including a flat above commercial premises, may be regulated and is introduced to a firm directly authorised by the Financial Conduct Authority. We are not directly authorised by the Financial Conduct Authority ourselves. Your property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
How much does it cost to convert commercial to residential?
Costs vary by building, specification and location, so any single figure would mislead. Budget for fire separation, sound and thermal upgrades, new services, windows, professional fees and a contingency of around 10%. On the finance side, allow for monthly interest, an arrangement fee of typically 1% to 2%, valuation, monitoring and legal costs.
What is the government's 40% loan scheme for buying a house?
This usually refers to the Help to Buy equity loan, which offered up to 40% in London for first-time buyers of new-build homes. It is closed to new applications and was for owner-occupiers, not developers. It does not fund conversions, though converted flats are sold to buyers who use their own mortgage arrangements.
Is it hard to change a property from commercial to residential?
It is straightforward if the building qualifies for Class MA prior approval or the council supports housing there. It is harder for listed buildings, protected areas, Article 4 areas, pubs and retail frontages the council wants to keep. Confirm the planning route with a planning consultant before committing to a purchase.
Can you get 100% development finance?
Not usually from a single senior lender. Most cap the total facility against GDV and expect you to put in equity. Higher leverage is sometimes possible with additional security over another property, a second charge, mezzanine finance or a joint venture partner, but each adds cost and risk.
Can I live in one of the converted flats?
Yes, but if you or an immediate family member will occupy part of the security, the loan is likely to be a regulated mortgage contract. The case would then go to a firm directly authorised by the Financial Conduct Authority, which we introduce. Investment-only schemes are unregulated and we arrange them directly.
Will lenders fund a conversion before planning is granted?
Some will lend on the current commercial value to let you buy, with the works facility only released once planning or prior approval is in place. Leverage on the purchase is based on the as-is value, not the value with consent, so you need more equity at the start.
