The problem

It’s quite easy to explain the root cause of the housing crisis that has dogged the country for decades: we haven’t built enough of the right homes in the right places.

Official figures state that 300,000 homes need to be built every year to be able to tackle the housing shortage, but we’ve never been close to that figure and the pandemic has made matters worse.

2020-21 saw 216,490 net dwellings added to the UK housing market, down 11% from 2019-20. The vast majority (194,060) were new build homes, with only 23,790 homes created from change of use from non-domestic buildings. Just under half of these change of use properties were under Permitted Development (PD), where full planning permission is not necessary, predominantly from disused office spaces.

Meanwhile, neither commercial property capital values nor passing rents have ever kept up with inflation in the UK, and that’s before inflation reached a 40-year high. What the UK has witnessed has been long periods of excess supply of commercial property, coupled with a constant under-supply of good quality housing.

This has happened at the same time as the e-commerce revolution. In 2000, online retail accounted for just 1% of total UK retail. By 2016, online shopping value was at £54bn and e-commerce accounted for 15% of total retail in the UK. Furthermore, according to the Edge by Ascential Future Retail Disruption 2021-2022 report, 32% of UK sales took place online in 2021, up from 29% in 2020. It also forecasts that 38% of UK retail sales will occur online by 2026.

Retail units have already seen a fall in demand from the rise of online shopping, with lower grade retail and commercial stock in large towns and cities very likely to see their marketability decline even further. This comes at a cost to landlords, in the shape of empty rate liabilities, marketing costs, security, insurance, etc.

The opportunity

All is not lost, however. Many landlords are seeing the benefits of conversion to residential. Under Permitted Development rights, reformed as part of the government’s ‘levelling up’ agenda, landlords can now convert a range of commercial use properties to housing without the need of a planning application.

At a time of significant flux in working patterns and demographics, conversions from commercial to residential are one way of encouraging people to live near local high streets and come to the area for work and leisure reasons. This can also help in terms of regeneration and possible gentrification of areas that would otherwise continue to decline. In addition, more residents equal a greater number of Council Tax payers for the local authority.

Meanwhile, there are initial signs at least that the pressures on the supply chain of building materials, brought about by Covid, are easing, therefore allowing for larger profit margins, and making conversions more attractive.

Applicants will need to show that the building has been in class E use (or former use classes now within the Commercial Business and Service use class) for at least two years before the application. The new homes will be delivered via a simpler ‘prior approval’ process instead of a full planning application and will be subject to standards for adequate natural light and space provision.

Development finance, change of use products, and even refurbishment products remain almost exclusively the preserve of the specialist sector as opposed to high street lenders. This is currently a good thing, as specialist lenders’ appetite for business has largely not been affected by the pandemic, while the traditional banks have retrenched to varying degrees and have a much-diminished desire for development projects at present.

The Tuscan solution.

At Tuscan Capital, the complete customer journey is at the heart of our every decision. We can fully look after a client through the full life cycle of a conversion (bridge, refurbishment/conversion loan/marketing bridge).

We can offer up 75% LTV to either clear existing commercial debt or help buying such property (subject to planning being in place). We can then offer 100% of the cost of works.

Even when a property is yet to receive its planning permissions, we can support in the initial acquisition of the property until such time planning is in place (the holding bridge).

Now, at Tuscan Capital we recognise that not all landlords will come with experience, but with the right professional team appointed, we will still consider support.

It is important to note that not all conversions will require a Quantity Surveyor; for smaller developments, we only require an Asset Manager in most cases, which saves the customer time and money.

On completion of the works, the applicant will then have the option to flip the loan onto one of our development exit facilities. This is subject to LTVs, allowing for forward advancing of ‘profit’ and reducing the borrower’s cost of debt.

There is opportunity to be had from the government’s response to the housing crisis and the issues with retail. Specialist lenders such as Tuscan Capital have a real appetite to help make this happen. We’re helping borrowers every week with their development projects and have a very competitive offering, so get in touch with us today about your client’s case.

Case Study.

The client required an urgent refinance of expensive commercial debt, secured against a commercial property in Doncaster. Once the initial debt was repaid and planning permissions was in place, we advanced 100% of the cost of works to covert the property into 12 self-contained apartments and two ground-floor commercial units.

On completion of the works, we then rewarded the client with a further advance of 75% of the GDV VP (to the value of £1m), in effect releasing profit built into the deal by the borrower, thus allowing the client to move onto their next project (which we are also supporting!)

The property is now fully occupied, and a commercial term mortgage will now redeem our facility. At each stage, the customer journey is paramount with our every move.

Get in touch to find out more by calling on 07759 648713 or emailing cgraham@tuscancapital.co.uk

Read the full article on Bridging Loan Directory now.

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For more information or to get in touch with the team, please contact us: 

Call Us: 020 7846 9030

Email info@tuscancapital.co.uk

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A range of case studies demonstrating examples of previously completed loans can be found here.


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