Development finance + LTGDV + drawdown + interest + lender criteria + typical London terms
Development finance is the primary funding route for medium-to-large commercial-to-residential conversions (typically 6+ flat conversions, £1.5M+ GDV). Structure: lender advances Loan-to-Gross Development Value (LTGDV) typically 65–75% of completed scheme valuation + build cost drawn down in stages (acquisition + monthly build drawdown via independent monitoring surveyor IMS). Day 1 advance covers 65–70% of acquisition; subsequent drawdowns release per build progress. Interest typically rolled up (added to loan balance monthly) + repaid on exit (sale or refinance). Typical terms London commercial-to-resi development finance 2024–2026 (Octopus Real Estate, Together Money, Aldermore, OakNorth, Atelier Capital, LendInvest, MT Finance, Roma Finance, Funding 365, West One): (a) Loan-to-Cost (LTC) 75–90% of total project cost (acquisition + build + fees + finance + contingency); (b) LTGDV 65–75% of independent post-completion valuation; (c) Coupon 9.0–12.5% pa (varies by lender + risk + experience + scheme size); (d) Arrangement fee 1.5–3.0% of facility (added to loan); (e) Exit fee 1.0–2.0% of facility (charged on redemption); (f) Monitoring fees IMS £750–£1,500 per visit × 8–12 visits per project = £6,000–£18,000; (g) Valuation fees acquisition + completion £1,500–£4,500 per valuation; (h) Legal fees lender + own £8,500–£25,000 typical; (i) Term 12–18 months (typical conversion timeline); (j) Personal guarantees typically required for SPV vehicles; (k) Experience: lenders prefer 2+ previous schemes completed (first-timers can sometimes find finance at higher coupon + tighter LTC); (l) Lender preference Class MA prior approval grant + planning certainty before drawdown commences. Worked example finance: Hounslow Brentford Class MA 12-flat conversion. Acquisition £1.85M; build £1.35M; finance + planning + legal £180k; contingency £140k; total project cost £3.52M. Sales GDV 12 flats × £475k avg = £5.70M. LTGDV 70% = £3.99M facility. LTC 90% of £3.52M = £3.17M. Lender advances £3.17M (below LTGDV cap). Day 1 acquisition 70% of £1.85M = £1.295M. Build drawdown monthly £75–£125k per month × 14 months. Interest 10% pa rolled up + arrangement 2.5% + exit 1.5% = total finance cost £518k over 14 months. Sales gross £5.70M − cost £3.52M − finance £518k − sales fees (3% agent + 1% legal) £228k = £1.43M net profit on £3.52M cost = 41% ROI. Cash equity required £350k (10% LTC deposit) + working capital + contingency. Refurb-and-flip bridging finance: alternative route for smaller conversions (1–6 flats) or where speed of acquisition critical. Structure: lender advances 70–80% LTV of acquisition + frequently 100% of build cost on schemes under £750k build (the build cost is added to loan via monthly drawdowns secured against rising valuation). Interest charged monthly (not rolled up typically) 0.65–0.85% per month = 7.8–10.2% pa effective. Arrangement 2.0% + exit 1.5%. Term 6–18 months. London bridging lenders 2024–2026: Octane Capital, LendInvest, MT Finance, Roma, Bridgebank Capital, Hampshire Trust, Together Money (across product), United Trust Bank (UTB) bridging division, Roma Finance, Westkin Capital. Example refurb-and-flip Class G 1-flat conversion: Acquisition £625k (mixed-use Victorian terrace with shop + flat); build £180k; finance + planning + fees £35k = £840k total project cost. Sales GDV: shop refinanced as Class G ground floor 1-bed flat £375k; existing flat above refinanced £425k = £800k GDV (or £800k refinance value if held for BTL). LTV 75% of £625k = £469k acquisition advance. Build drawdown 100% of £180k. Total facility £649k. Personal cash equity £191k + working capital. Interest 0.75% per month × 14 months = 10.5% × £649k average = £68k. Arrangement 2% £13k + exit 1.5% £10k = £91k total finance cost. Refinance to 70% LTV term mortgage on £800k GDV = £560k cash extracted. Net cash recovered £560k − £649k bridge redemption + £91k finance + £180k build = full project cost recovered + £140k working capital extracted.
Refinance + term mortgage + buy-to-let mortgage + commercial-to-resi specialist lenders
Post-conversion refinance routes: (1) BTL portfolio term mortgage — typical 70–75% LTV at 4.5–6.5% pa fixed 2–5 years (specialists: BM Solutions, Paragon BTL, Aldermore BTL, Together BTL, Vida Homeloans, Foundation Home Loans, Landbay, Castle Trust). Used where landlord retains all flats for portfolio rental. Stress test: rental income 145% of mortgage payment at notional 5.5% rate + 25-year term + interest-coverage ratio. Worked example: 12-flat Class MA scheme refinanced as portfolio BTL. RICS valuation £5.7M. LTV 70% = £3.99M facility at 5.5% pa = £18,250/month interest-only or £24,500/month repayment 25-year term. Rental income 12 × £1,850/month avg = £22,200/month. ICR 22,200/18,250 = 122% (below 145% target — partial extraction only). Practical extraction LTV 60% £3.42M facility at 5.5% = £15,675/month. ICR 22,200/15,675 = 142% (acceptable below 145% but tight) or LTV 55% £3.135M at 5.5% = £14,370/month. ICR 22,200/14,370 = 154% (comfortable). (2) Sell-to-let — sell some flats to repay development finance + retain others on BTL — typical 4–6 flats sold of 12 at GDV £475k each = £2.85M sale proceeds repay £3.17M bridge minus £320k partial bridge top-up; retain 6 flats refinanced 70% LTV on £2.85M valuation = £1.995M = £450k+ working capital extracted. (3) Sell-all — sell all 12 flats over 6–18 month marketing window at £475k average = £5.7M − sale costs 4% = £5.47M net proceeds repay £3.17M + finance £518k = £1.78M net cash profit. (4) Commercial-to-resi specialist lenders: increasingly lenders are launching specific Class MA + Class G + commercial conversion products with streamlined planning + valuation + drawdown — including OakNorth Bank Class MA + Permitted Development product, Atelier Capital Commercial Conversion, LendInvest Bridging + Development, Together Money Bridging + BTL, Octane Capital Auction + Development. Lender criteria for Class MA: (a) Prior approval grant required for development finance drawdown (some lenders allow bridge advance at acquisition pre-grant + drawdown commences on grant); (b) Build cost evidenced by IMS sign-off; (c) NDSS compliance + Building Regulations approval before commissioning drawdown; (d) Builder + main contractor approved (PI insurance + history + JCT contract); (e) Builder warranty (LABC, NHBC, Premier, BLP, ICW, Q-Assure) provided pre-completion at 10-year cover (typical £8.50–£14/m² + £150–£250 set-up); (f) Independent monitoring surveyor IMS — appointed by lender + paid by borrower — Calford Seaden, Ridge, Faithorn Farrell, Stace, McBains, Dunbar Boardman (£750–£1,500 per visit × 8–12 visits). Builderr workflow finance: (1) Pre-acquisition feasibility — Builderr in-house viability + lender pre-screening intro to 3–5 lenders; (2) Acquisition bridge — bridge-to-development advance at acquisition securing site under exchange + completion; (3) Prior approval grant — switch to development finance + drawdown commences on grant + commencement; (4) Build drawdown monthly via IMS sign-off + Builderr stage payment + main contractor monthly valuation; (5) Completion + Building Regs + Council Tax registration + IMS final sign-off; (6) Refinance to portfolio BTL term or sell-and-repay or sell-all — exit choice locked 6–9 months pre-completion based on market + cash position; (7) Working capital recovery + redeploy to next acquisition. See [[class-ma-office-to-residential-conversion-london]] + [[class-g-mixed-use-shop-with-flat-london]] + [[construction-loan-vs-bridging-london]] + [[self-build-mortgage-london]].
