Switching a Commercial Mortgage to Residential
Can you convert a commercial mortgage to residential? Read on to find out how to go about it, and what to consider before you begin
What type of commercial property are you looking to mortgage?
No impact on your credit score
Author: Pete Mugleston - Mortgage Expert, MD
Updated: August 01, 2022
Since an update to the GPDO (General Permitted Development Order) in 2015 made it easier to change the purpose of a building from commercial to residential, the number of conversion properties in the UK have increased exponentially.
If you’re looking to change the purpose of a commercial property that you already own or are looking to purchase, we’ll look at the steps you need to take to convert it into either your dream home or a profitable investment property, and what this means for your mortgage.
The following topics are covered below...
Can you switch a commercial mortgage to residential?
It is possible to get a residential mortgage on a property that was previously used for commercial purposes, but it’s not as simple as just remortgaging.
There are no lenders that will offer a residential mortgage on property that’s still classed as commercial use, or vice versa, so it’s essential that the purpose of the property matches the mortgage type.
If the property usage type is changing, some lenders will allow you to apply for a residential mortgage with the intention of clearing the debt on an existing commercial mortgage, but it’s important to note that you’d be taking out a new mortgage, not changing from one type to another.
The reason you can’t simply switch mortgage type is because your commercial mortgage would likely have been offered on an unregulated basis, and your new residential agreement would need to have regulation in place, under standard industry guidelines.
It’s also possible to change from one commercial mortgage type to another. If you plan to convert a pub that you own into apartments, for example, you will need to change the mortgage from an owner-occupier or commercial buy to let, to a residential buy to let.
Get Started with a Broker
Maximise your chance of approval with specialist advice from an expert in Commercial Mortgages.
How to change a commercial use property to residential
In any of the above scenarios, you’ll need to ensure that the commercial property meets the mortgageability requirements of a residential mortgage lender.
This will certainly involve applying for a change of use, and in most cases also carrying out renovation works in order to meet the minimum building standards of a dwelling, as well as potentially planning permission to carry out the required works.
It’s incredibly unlikely that most commercial properties would be immediately suitable for a residential use, and most would be deemed unmortgageable by residential lenders. There are however, some exceptions to this, such as a small B&B or guesthouse.
Depending on whether the property will be converted into a single residential dwelling or a house of multiple occupancy (HMO) you will need to meet the minimum building standards for the respective dwelling.
This will include the provision of a suitable kitchen and bathroom or shower room if they are not already in place.
You will also need to meet the minimum size standards of a dwelling, for example, the minimum allowable space is 37m² for a one bedroom dwelling.
You will likely need to consult with an architect and solicitor to ensure that your property is compliant with the above, as well as all necessary safety regulations.
If you already have a commercial mortgage in place and need to borrow funds to carry out renovation works, you could use a bridging loan.
Then either a residential mortgage, or a residential buy-to-let mortgage as the exit strategy on the loan, depending on your intended use, once you’ve brought the property up to a mortgageable standard.
Keep in mind that the amount you borrow on your new residential mortgage in this scenario will need to be enough to clear the bridging loan and your outstanding commercial mortgage balance.
If you’re thinking about buying a commercial property to convert into a personal home, you may be able to use a self-build mortgage to carry out the renovations.
It’s even possible to get a specific conversion mortgage for this purpose, and Ecology Building Society provides this option for those willing to meet certain environmental standards through the conversion process.
It may also be possible to remortgage onto this type of residential mortgage if you already have a commercial mortgage in place, however, in this case you would need to meet the affordability requirements for a loan high enough to both repay your existing commercial mortgage, and carry out the renovations simultaneously.
Many lenders offer remortgage deals that come with extra borrowing, but speaking to a broker before you apply for one is highly recommended.
Although the updated GPDO now allows a wide range of commercial properties to be converted to residential use without planning permission, this is unlikely to be straightforward, or may not be possible if the building is:
- In or close to a conservation area or national park
- Is in or close to a designated area of natural beauty or scientific interest
- Is in or near to an area with safety concerns, such as military explosive zones
- Is a listed building
If your chosen property falls into one of the above categories, full planning permission will be required, where possible, and there are likely to be caveats, such as design limitations and requirement to meet a specific acceptable standard in line with the original appearance.
You won’t typically need to apply for planning permission if the commercial property you intend to convert is 150 square metres or smaller, and is one of the following types:
- Shops
- Hairdressers
- Banks
- Retail warehouses
- Showrooms
- Light industrial premises
- Professional services
However, it’s always best to check with an expert broker, to ensure you’re not missing any important considerations.
It’s important to note that you’ll still need to seek ‘prior approval’ from the local authority even if you don’t require planning permission.
If you’re changing the purpose of use of a property, regardless of whether you need to carry out any physical changes, or apply for planning permission, you’ll need to ensure the use class matches that purpose.
If you’re considering changing the use to residential, you will therefore need to ensure that you apply to change the use to C Class, as per the below table.
UK Building Classes | Building Purpose |
B Class | Industrial processing premises or warehouses and open air storage facilities |
C Class | Residential properties of all types, i.e house, HMO, hotel, care home, hospital etc |
E Class | Professional services premises, including restaurants, gyms and offices etc |
F Class | Non residential leaning facilities, such as schools and colleges, and community use premises, such as shops, recreational halls and Libraries |
Sui Generis | Buildings generally fall into this class when they fall outside the defined limits of any other use class, but may include: theatres, fuel stations and casinos |
A change of use may be required even where the change doesn’t require a change of class, for example, changing a hotel into residential dwellings would require a change from C1 to C3, so it’s important to ensure you inform the authorities of any planned change of use.
You won’t, however, need to apply for planning permission if the property is not changing to another use class.
What criteria you’ll need to meet
The criteria that you’ll need to meet will depend on the type of finance you’re applying for. As explained above, it won’t be possible in many cases to immediately apply for a residential mortgage, and therefore you may want to look at the criteria for commercial mortgages, bridging loans, and self-build mortgages, depending on the route you plan to take.
If you’re converting a commercial property that you already have a mortgage on to residential, you’ll need to have owned it for a minimum of 6 months before most lenders will let you convert it to a residential mortgage.
Once your conversion is suitable, the criteria for a residential mortgage will vary from lender to lender, but typically include:
Income and affordability -
You will need to prove that you can afford the repayments.
This will be based on an assessment of your income and outgoings and the income multiple the lender uses to calculate maximum borrowing.
Employment type -
Some lenders prefer employed applicants, however, there are certain lenders that specialise in self-employed mortgages.
Deposit -
5-10% is the minimum deposit required for a residential purchase, although offering more than this will reduce the rates available to you and potentially increase your overall loan amount.
Age -
You may need to be within a certain age range to qualify, usually 18-75, however, there are lenders with no upper age limit for older borrowers
Credit history -
Most high street lenders will require a strong credit record, although there are specialist lenders who offer bad credit mortgages
Property type -
There may be some restrictions based on this. See our array of articles on mortgages and property types for more information.
Our Broker-Matching Service Guaranteed!
We want you to have complete confidence in our service, and get the best chance of securing your mortgage. We guarantee to get your mortgage approved where others can’t – or we’ll give you £100*
Which lenders will let you do this?
Mainstream lenders such as Barclays and Santander offer both commercial and residential mortgages, so they would be well equipped to understand your application.
But as this is quite a niche area of borrowing, it’s highly likely that you would need to go through specialist lenders to get the best deal available.
High street residential lenders tend to limit their lending to certain property types, so if there is anything unusual about the construction of your new home, even post-conversion, you’re likely to need a specialist lender.
A broker that specialises in commercial to residential conversions will be able to find you a lender that is best suited to your needs and circumstances, whether you’re looking to change a commercial mortgage to residential, or fund the renovation that will allow you to do so in the future.
How your interest rate will change
If you’re changing your mortgage from a commercial to a residential, you should notice a significant drop in your interest rates, as commercial borrowing is generally charged at a higher rate of interest, due to the profitable element of commercial property ownership.
If you’re remortgaging to a residential buy to let you won’t see such a dramatic reduction in rates, however.
What this means for your mortgage payments
Try our residential mortgage repayments calculator below to get an idea of what your new mortgage payments will look like when you switch from commercial.
Mortgage Repayment Calculator
Our mortgage repayment calculator can tell you how much your mortgage will cost you each month and overall. Enter the amount you’re borrowing, the term length and interest rate, and our calculator will do the rest.
Monthly Repayments:
Total amount paid at end of term:
Get started with an expert broker to find out how much they could help you save on your mortgage repayments.
Other costs to consider
Besides the mortgage, there are a number of costs involved in converting a commercial property to residential that you’ll need to consider.
Whilst these will vary depending on the level of work required, property type and firms used in each case, they are likely to include the following:
Renovation costs -
This is impossible to estimate without specific details, however, it’s worth bearing in mind that if you’re a tradesperson or architect, you may be able to carry out some of the works yourself to save money.
If you need to borrow the money for the renovation works, you’ll also need to consider the costs associated with bridging finance, which usually includes a 1-2% product fee and fairly high interest rates.
If you’re using a self-build mortgage, it’s important to note that the money is paid both in stages and in arrears, so you’ll need enough money to pay for each stage of the renovation upfront if you choose this option.
Planning permission -
If required, this ranges from £96-£462 depending on the type needed
Prior approval fee -
Due to local authority regardless of planning permission, is £200
Stamp duty -
The threshold for stamp duty is lower for residential properties than for commercial (£125,000 rather than £150,000).
It’s therefore possible you’ll need to pay stamp duty post conversion, even if you didn’t when you made the commercial purchase, especially if the renovation has increased the property value.
If the converted property becomes your second residential home, you’ll also need to consider that the stamp duty will be charged at the second home rate, which is 3% higher than standard residential stamp duty.
Early repayment charges -
If you are taking out a commercial mortgage to clear your commercial mortgage debt, there might be early repayment fees to pay.
Solicitor and surveyor costs -
These will be due both when you take out a commercial mortgage and when you convert to a residential, so you may need to factor in both costs if you don’t already own the commercial property.
This can range from a couple of hundred to a couple of thousand pounds, depending on the property size and type.
Reviews
Amazingly Helpful
Was always happy to help and advise me best going forwards Always should enthusiasm and knowledge throughout Would defo recommend!
Danny R
Excellent Service – Highly Recommended!
Excellent service, very helpful and knowledgeable advisors. Highly recommended!
Trusted Customer
Very professional and efficient…
Very professional and efficient service! Would definitely recommend.
Hannah R
Get matched with a broker experienced in both commercial and residential mortgages
Converting a commercial property and/or mortgage to a residential mortgage or residential buy to let is not a simple process, and certainly not something that should be attempted without the right advice and guidance.
The brokers we work with are experienced in both commercial and residential mortgages, as well as bridging finance, so no matter what your circumstances, or what stage at the process you’re at, they’ll be able to impart their expert advice and help you secure the most suitable finance for your endeavours.
Our free broker matching service will be able to pair you with a broker that has the most suitable experience, and your initial consultation with them will also be free. Simply call 0808 189 0463 or complete the following enquiry form, and we’ll put you in touch with the right expert immediately.
Ask A Quick Question
We know everyone's circumstances are different, that's why we work with mortgage brokers who are experts in all different types of commercial mortgages. Ask us a question and we'll get the best expert to help.
Pete Mugleston
Mortgage Expert, MD
About the author
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!