Conversion Finance

Conversions come in all shapes and sizes, and conversion finance lenders provide the flexibility and adaptability that developers need in conversion projects.

bridging-directory-hero-blue.jpg

Talk to our development finance experts

Call us on 0207 043 5271

or enquire now

Not all property development projects are large-scale construction works, or involve building from the ground up. Often it’s more profitable to exploit an existing structure, turning a building that once was uninhabitable (or at least undesirable) into one which is easy to sell. However, as with many other types of property development, it’s necessary for developers to source a secure, stable finance stream to accommodate all the expenses which accompany a conversion project.

While a conversion may not necessarily involve the actual laying of foundations or erection of walls, it can very often require extensive works to be carried out; internal walls may need to be created or demolished, and the property might well require substantial remodelling to meet the developer’s objectives. It’s not a small job, and it requires a good deal of financial clout to carry out a conversion project. Consequently, there are many specialist lenders dedicated to providing financial solutions for conversion projects, and who can create bespoke lending packages that match the needs of their clients. In this article we’ll examine the demands of conversion development and how lenders in this sector meet these needs; we’ll also cover some of the key aspects of this type of loan. As always, it’s important to bear in mind that conversion finance is a type of loan, and must be repaid with interest; before committing to a loan of this type, developers should seek the advice of a qualified financial advisor.

Who needs conversion finance?

Finance is always a part of property development. Apart from the fact that few developers can afford to put up the millions of pounds to buy a property outright, it’s often not advisable for them to do so. While developers will need to pay interest on any money they borrow, there are many advantages to borrowing over using capital. First amongst these is the ability to remain flexible, which is key to success within the property development sector - a developer that sinks all of their available capital into a single project is putting all the eggs in one basket. They’re unable to diversify their investments, and can’t therefore take on other projects until they’ve completed their first one. This means there’s an opportunity cost associated with capital purchases. It also leaves the developer vulnerable to changes in the market, because a drop in their property’s value could easily be enough to sink them.

For these reasons, conversion finance is a vital element of any conversion development. Property developers will often choose to borrow money when possible, even if they can afford to pay for the work upfront - there are many benefits to remaining financially adaptable in a fast-moving market.

How does conversion finance work?

Conversion loans are used for a wide variety of reasons, and the sheer diversity of conversion projects in real estate development means that conversion loans come in all shapes and sizes. However, while every lender will have a comprehensive suite of loan products to suit every situation, there are some features which all conversion loans have in common. The specifics may change, but the fundamentals are usually the same:

  • Secured: Extensive conversions aren’t cheap, and require a lot of money. It’s not uncommon for a large conversion project to run into the hundreds of thousands of pounds, and there are no lenders who can afford to supply this kind of money without a “Plan B” in case the borrower fails to repay. Therefore, conversion loans are typically secured against the property that’s being converted, giving the lender the ability to sell the property and recoup their money if the loan isn’t repaid on time. Because the loan is secured against the property’s value, lenders will need to carefully evaluate how much the property is worth (and how much it will eventually be worth), and will then provide funding in proportion to the property’s value. It’s important to note that the property’s value will increase as work goes on, and the lender will often need to revisit and revalue the site during the course of the project before they provide the next “tranche” (installment) of the loan.
  • Flexibility: There is no such thing as a “typical” conversion project, and each and every development will have its own timescale, objectives and challenges. This means that conversion finance lenders have to adapt to the different needs of their clients, and can’t simply adopt a “one size fits all” policy; each and every developer receives the bespoke treatment they need. This means that the loans a conversion lender makes will be tailored to enhance rather than hamper the profitability of a conversion, a far cry from the rigid policies of mainstream lenders.
  • Speed: Conversions themselves may take several months to complete, but the property development market is intensely competitive. Especially in the initial phases of a development, investors need to move very quickly indeed to seize opportunities ahead of the competition, which means they need a lender who can work within an extremely pressured timescale. Conversion finance providers are able to accommodate these demands, and can usually fulfil a loan within a matter of days (some lenders even boast of being able to turn a loan around in just 24 hours, often acting as an emergency funding source to save a project from repossession).

Conversion finance in the property development industry

Conversion projects can be large or small, extensive or cosmetic, but they all share one thing in common; they need to be supplied with sufficient cashflow to ensure they mature on time and on budget. There are many specialist lenders operating within the market that can supply just this, and are able to empower property developers with the tools they need to act quickly and confidently when necessary. Without this finance, developers would be hamstrung and constrained by their capital cashflow and unable to work flexibly - conversion finance is a vital part of the real estate development machine, and developers should have a keen grasp of how it can keep their developments moving forward.

Common Uses Of Development Finance

  • Overview

    Reliable finance is a crucial part of any successful development project, and bridging lenders offer a wide variety of attractive products in this sector.

  • Barn Conversion Finance

    Barn conversions can result in amazing properties, but require a lot of work. Specialist lenders provide vital financial backing to keep these projects on track

  • Construction Finance

    Successful completion of a property development project relies on a strong, stable source of finance from start to finish, which construction finance provides.

  • Conversion Finance

    Conversions come in all shapes and sizes, and conversion finance lenders provide the flexibility and adaptability that developers need in conversion projects.

  • Development Exit Finance

    Development exit finance enables property developers to react flexibly to changing situations, and to restructure their financial commitments to maximise profits

  • Inexperienced Developer Finance

    Inexperienced developers may well have access to lucrative opportunities, and the flexible approach of development lenders enables them to take on projects

  • Land Acquisition Finance

    Successful property development requires stable funding from the very start, and land acquisition loans are an important element of any construction project

  • Mezzanine Finance

    Mezzanine finance is an important ingredient in property development, and it enables developers to take on opportunities they’d otherwise struggle to fund

  • New Build Development Finance

    New-build projects need stable funding from start to finish, and new build development finance lenders provide the tools property developers need in this sector

  • Pre-Construction Finance

    There’s plenty of work to do before construction starts, and the costs of paving the way for a successful project must be met with pre-construction finance.

  • Property Development Finance

    Property development requires specialised financial solutions, and the UK’s development finance sector provides a variety of highly flexible funding options

  • Retail Conversion Loans

    Retail conversions can be lucrative opportunities, but developers must ensure they have appropriate funding to secure planning permissions and carry out work

  • Refurbishment Finance

    Refurbishment finance lenders provide the tools that property developers need to quickly seize and escalate renovation projects from beginning to completion

  • Self-Build Finance

    Self-build projects require a specialist touch, and there are many development lenders dedicated to providing self-build finance for precisely this purpose.

  • Site Acquisition Finance

    Moving quickly is vital for successful property development, and site acquisition finance is an indispensable part of any development finance package.

  • Unmortgageable Property Finance

    Unmortgageable property finance allow property developers to take out flexible finance solutions to refurbish and renovate properties for mortgage or resale

National Association of Commercial Finance Brokers Association of Short Term Lenders Association of Bridging Professionals

bridgingdirectory.com is brought to you in partnership between FMG and Falbros.

Falbros Media Group (FMG) is registered in England, Registered Number 11085818.

Registered office: Metro House, Nothgate, Chichester, West Sussex, PO19 1BE.

Falbros Ltd is authorised and regulated by the Financial Conduct Authority under reference number 745807.

Registered office: 1 Mayfair Place, London, W1J 8AJ. Registered in England Number 8147460.