For many individuals wanting to start a business, finding the right building to base your day-to-day operations in can be very challenging, especially given the often extremely high costs attached. So, even if you do find the right commercial building for your business, you might not be able to afford it while you’re just starting out.
This can sometimes mean you need to think outside the box to make sure you get all the commercial space you need. One unconventional way of doing this is by turning a residential property into a commercial one. Even though it is more commonly done the other way round, with the right solicitors and commercial conveyancing, you can certainly make a residential building your new business home.
Where to start when converting a residential property for commercial use
Depending on the intended purpose of your business in the property, there are several steps you will need to take before you will be able to change your mortgage. This is because the purpose of the building will determine the type of mortgage that you need to switch to, a few examples might be an owner-occupier commercial mortgage, a semi-commercial mortgage, a commercial buy-to-let, or a residential buy-to-let.
There are many reasons you may be inclined to change a residential building to commercial, but the likelihood is the property won’t be ready to use commercially, unless you are just letting it out to tenants. Even when using for residential purposes, you must consider regulations for rental property not normally taken into account as a homeowner, such as building, fire, and health and safety.
If you plan to use the property as a form of trading or other commercial uses premises, you will probably need to carry out considerable renovation works before you could apply to change the classification of the building or the mortgage type.
Finance options
There are multiple finance options available to you, but these can vary quite widely based on the changes you want to make. For instance, if you want to change a residential home to a residential buy-to-let, there might not be a lot of structural alterations needed, and in this case, it is normally possible to remortgage onto a residential buy-to-let. If you intend to change your home into a mixed-use property and require additional rooms, or need to do renovations to the building, there are a few ways you could approach financing these changes.
Certain lenders may provide a self-build mortgage for properties with multiple uses, depending on the type of business you desire to run from home. Not all lenders will offer this though so it’s important to seek expertise if you want to go down this route. Also, you might consider a bridging loan to finance the alterations before refinancing to a semi-commercial mortgage once the conversion is complete.
If you plan on converting your residential property completely into commercial space like retail premises or offices, you will likely be able to refinance onto a commercial mortgage and either release some of the equity from your residence or increase the amount you borrow so you make the required renovations.
Requirements for planning permission
You may not need to apply for planning permission, depending on what your intended commercial use is, and the number of physical changes, if any, you want to make to the building. However, planning permission is typically needed when you change the use class, so if you are changing to anything that is non-residential, the chances are you will need to seek planning permission. In addition, you must obtain prior approval from the local authority and apply for change in use class, regardless of if a planning permission is needed.
Changing the use class
To be able to use the property as intended and get the right type of financing, you must first alter the use class. Even if you are keeping within the same building class, the sub-category will probably need to change, so always notify the relevant authorities of any planned alterations. An example of this would be converting a single residential home into a HMO, which would require switching the class from C3a to C4. You can find the use classes for UK properties in the table below.
| Building classes | Building purpose |
| B class | Industrial processing premises or warehouses and facilities for open air storage |
| C class | All type of residential properties e.g., house, HMO, care home, hotel, hospital |
| E class | Professional services like restaurants, gyms, and offices |
| F class | Non-residential leaning facilities like schools and colleges and community uses buildings e.g., shops and libraries |
| Sui Generis | Buildings outside the defined limits of other classes, can include theatres, petrol stations, and casinos |
The criteria you’ll need to meet
The criteria you will be required to meet depends on the finance required to successfully complete your conversion. However, if you need to transition to a commercial mortgage, there are some standard criteria that will apply.
Affordability
Usually, you can borrow 70% of the building’s worth. Although you must usually show income, there’s no minimum income rule, and lending isn’t purely based on it. If you plan to rent out the property, the loan will likely be based on the expected rent. For owner occupier purchases or remortgages like for a retail outlet, this will depend on the value of the property.
Deposit
Commercial mortgages usually require a 30% or greater deposit, but you can use other property in your portfolio, or business assets, in place of cash for the deposit.
Property type
Not all lenders will consider all business endeavours, and you might need to use a specialist lender, depending on your intended use for a commercial space.
Business plan
The lender usually requests to view building plans, including renovation expenses and future earnings projections, prior to deciding to lend money.
Changing interest rates
Swapping from a residential mortgage to a commercial one likely means higher interest rates, as commercial financing is usually pricier than home loans. The exact commercial mortgage you get affects how much the rate increases. Keep in mind that rates can change at any time so be sure to check beforehand.
Summary
The above considerations and steps are the main parts of the process when changing a residential property for commercial use. We hope you have found this guide helpful and if you’re looking for help with your commercial or residential conveyancing, our team at Toomey Legal can help.
Our property solicitors in Newcastle have extensive knowledge and experience in the industry and can help you through the conveyancing process as quickly and smoothly as possible. Contact us today to learn more.