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Case Study – Commercial to Residential Conversions

Property Development

Mortgage/loan for converting a commercial restaurant into 4 brand-new residential flats

Periodically, we come across cases that we believe other property investors would be interested to learn about. The summary below is one such case, highlighting the client’s unique requirements and how we provided a solution they were happy with. We hope you find this recent case study helpful!

The Property

A vacant commercial building currently used as a restaurant, with a studio flat above but had planning to convert the full building into 4 residential flats to be held as an investment.

Client Background

My client was a first-time investor, but their day-to-day trade and self-employment was acting as a quantity surveyor. They had their own team built especially for this conversion, who had completed all of the client’s previous builds/refurbishment projects that they oversaw as the quantity surveyor. However, this time they wanted to be the ultimate owner of the property and manage the purchase, conversion & refinance themself.

Client’s Requirements

My client was in need of a semi-commercial bridging loan to allow them to purchase the property without the need for the works to be funded. The client had set up a new limited company to purchase the property and they then needed to refinance the building onto a long-term BTL mortgage once all 4 flats were complete. My client was looking to do all of this with no personal landlord or property investment experience.


We found a lender who was willing to lend on this project at 65% loan to value of the property’s purchase price which was £125,000. This allowed for a loan of £81,250 to be granted.

Once completion of the purchase went through, the client got straight to work on converting the property into the desired 4 flats. The cost of the work came to £130,000 once everything was finished. However, due to a few issues discovered at the back-end of the project,  the completion of the 4th flat was significantly delayed.  The other 3 flats were complete and ready to be let within the original estimated time frame.

Fortunately, we selected a bridging lender who we knew was flexible and they were very understanding that the client was going to go over the agreed term that had been agreed. They did not charge for an extension and just required the client to start servicing the loan payments per month.

The client was still eager to repay the bridging loan however, so after discussions with his solicitor, they decided that they were going to split the 4th flat onto its own leasehold title on completion of the new mortgage, which would leave the lender with security over the freehold – 3 flats on one title.

The reason for this is that a lender won’t provide a long-term mortgage on a property still undergoing work. Removing the 4th flat from the freehold means the lender is only providing finance on 3 fully refurbished flats.

We needed to approach a lender who would be willing to accept the above scenario and once we had identified an option for this, the application was submitted and the valuation was instructed.

The 3 flats were valued at £270,000 and the 4th flat was provided with a gross development value of £90,000. The 3 flats were being let out for £2,000 a month in total.

The lender was able to provide a 75% loan on the £270,000 valuation which equates to a £202,500 loan. This was then used to repay the £81,250 bridging loan, leaving £121,250 to go back to the client which almost covered the eventual full cost of the refurbishment for all 4 flats. They were then also left with an unencumbered flat on its own leasehold title worth £90,000.

Client Feedback

I’ve used Advocate Finance on two occasions now; firstly to arrange a bridging loan to purchase a commercial property and then to refinance the same property once it had been converted into flats. On both occasions I worked with Henry and his service was fantastic. He found me great deals, was very helpful and also highly professional throughout the process.

How can Advocate Finance help?

Are you looking at purchasing a commercial building with the view of gaining planning permission to convert the building into residential assets?

Whether you need a mortgage to purchase the building or a loan to also fund the project, we will be able to find you a solution to meet your specific needs.

If you plan on retaining the asset as an investment then we would also be more than able to provide this long-term mortgage as the exit strategy.

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Picture of Henry Barley

Henry Barley

Senior Property Finance Adviser | | 01206 544333
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Picture of Henry Barley

Henry Barley

Senior Property Finance Adviser | | 01206 544333