Mortgage for Barn Conversion
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Mortgage for Barn Conversion (Part 1)
Scott West talks to us about mortgages for barn conversions. Episode one of two, recorded in September 2024.
Can I get a mortgage to convert a barn? Can I get a mortgage on a barn with planning permission?
Yes, is the short answer. There are two different routes to go down.
If it’s going to be your home in the future, it’s regulated. If it’s going to be something for investment – perhaps it’s at the bottom of your garden and you’re converting it, or you’ve found a place you want to convert into a Buy to Let or sell, that’s unregulated.
You can mortgage both, and you can develop both. There are two different loan facilities and we’ll cover both of them off as we go through.
How does a barn conversion mortgage work? Is it difficult to get a mortgage on a barn conversion?
They’re not difficult. It’s fairly straightforward and becoming more common these days. More lenders are offering these mortgages and the rates are more competitive than they’ve ever been.
In terms of how it works, if you’ve ever looked at our other development podcasts, it’s a very similar process. Regulated or unregulated, the process is virtually the same, with just some slight differences in some of the paperwork.
Planning permission needs to be in place already if it’s needed. Appropriate builders need to quote for the work and undertake the work. The Gross Development Value (GDV) needs to stack up, and you need to have some skin in the game – so some cash.
If you already own it, you’ve probably got the equity. If not, you’d need some cash to put into the deal. But 100% of the building costs are covered, and if you are purchasing it, somewhere between 50% and 60% of that purchase price can be funded too.
Usually if you are buying, the land or purchase costs are quite low compared to the total cost.
Will I need planning permission for a barn conversion? When is full planning permission required?
Yes, you almost certainly will need planning permission. There might be some exceptions, if there’s permitted development in certain areas; if it’s a very small conversion or an extension to a property.
Do speak to your local council for guidance on that. Engage architects up front, to make sure you get the plans right – they can do that planning application for you, as well.
What type of mortgage will I need for a barn conversion?
That really depends what stage we’re at. Firstly, if it’s a barn that has no planning, whether you own it or not, you’ll need a bridging loan. That can give you some cash towards getting planning permission.
If you’ve found a barn you want to purchase and it doesn’t have planning, again, that bridging loan will enable you to purchase while you work on the planning permissions.
If planning is in place already and you want to purchase the property, or you already own it, we can go straight onto a development loan. All of the work costs will be covered by that loan, and between 50% and 60% of the purchase cost can be built in if needed.
How much can I borrow for a mortgage on a barn conversion?
It does fluctuate a bit depending on location. If you’re in the prime south and southeast areas, you’re going to get a slightly higher Loan to Value because the saleability is slightly higher.
But largely, you’re looking at 70% Loan to GDV. So if you’re looking at a £1 million total value for a property at the very end, the total loan a lender will give you is no more than £700,000.
That £700,000 will include the arrangement fees, interest and purchase cost if that’s involved. The rest covers the build. Most of the time you don’t ever need to get to 70% loan to GDV, unless it’s a very high spec home with underfloor heating, gold taps and a swimming pool in the basement. Most people probably don’t need that much of a Loan to Value.
Can you get a self-build mortgage for a conversion or bank conversion?
A self-build mortgage is a development loan, but for a property you’re going to live in. If it’s regulated, they call them self-build. If it’s unregulated, they call it a development loan. They are the same product, in essence, with slightly different lenders, and the rates are very similar.
The only difference is the name of the paperwork and who’s lending you the money. That’s what really changes.
Can I get a mortgage for a barn that has agricultural restrictions?
Yes, we can. It depends what they are, and whether this barn is going to be your home or a Buy to Let. It’s more likely to be impacted at the exit. When you want to move in, or offer it as a Buy to Let, that’s when this becomes more applicable – it does depend what those restrictions are.
It’ll come up very early in your enquiry anyway, and we’ll cover that for you to make sure we find you a suitable lender to get around those.
Can I get a mortgage for a barn conversion on a listed building?
Yes, as long as the planning is approved, and depending if it’s grade one or grade two. If it’s grade one it probably won’t be possible, but if it’s grade two, as long as you adhere to the restrictions they’ve given you and the guidelines on building fittings etc., we can still do it.
Do you have anything to add before we come back for part two?
There’s a lot of these going on at the moment. So if you spot an opportunity, speak to us. Barn Conversions are not as difficult or as costly as people think. People always see these incredible barn conversions on renovation TV shows and Grand Designs, yet the products aren’t as expensive as you might think.
So if you spot something, reach out and speak to a broker.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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Mortgage for Barn Conversion (Part 1)
Scott West talks to us about mortgages for barn conversions. Episode one of two, recorded in September 2024.
Mortgage for Barn Conversion (Part 2)
We continue the conversation on mortgages for barn conversions with Scott West. Episode two of two, recorded in September 2024.
Can I get a mortgage for a barn conversion if I’m a First Time Buyer?
Yes, you can. There obviously are caveats, as always, and additional steps to take with the lender. We need to cover off your financial stability, the viability of your project experience, and total wealth in the background, to cover for contingencies.
Can I get a mortgage for a barn conversion with bad credit?
Yes, but there can be some difficulties. The first thing to consider is that mortgage rates will be higher. The lenders we use for development loans, whether it’s regulated or unregulated, will always have higher rates.
The lender choice might change depending on the credit issue. If it’s just some CCJs on a mobile phone or utility bill, those can be mitigated fairly easily. If it’s something more substantial such as missed mortgage or credit card payments, even bankruptcies, it can still be done. The rates are just a lot higher, or there will be additional fees.
The other point to consider is the exit. The development part we can overcome fairly easily once we know what we’re dealing with. The exit can be more difficult.
If it’s your own home, under regulated borrowing, we need to make sure we’ve got a lender lined up at the start who’s comfortable with the credit situation and will give us a Decision in Principle.
On the Buy to Let side, we can usually make it work. It just might be a lender that’s slightly higher in rate. We’ll make sure we have a really well mapped out plan to cover off the loan facility at the exit.
What are the alternatives to a barn conversion mortgage? What other types of building do lenders accept for conversion mortgages?
There aren’t really alternatives to barn conversion mortgages because they are just development loans. But if you didn’t want a development loan, we could raise capital on other assets.
If you have your own home, for example, you can release equity from that to do the development. The same goes if you have a Buy to Let in the background, we can raise capital for the barn conversion and figure out an exit if we need to.
Lenders will accept practically anything for conversion. If we can get planning permission to convert it, we can get a loan for it. It could be a school, hospital or an office.
How much does it cost to convert a barn into a house in the UK?
It obviously depends on how big the barn is, where it is and how much you’re converting. That’s a build cost question. But if we’re talking about interest, you’re going to be looking at between 7% and 10% of the loan [podcast recorded in September 2024]. That depends on your credit score, and how much loan we need in the first place.
If you need to borrow as much as possible, it’s going to be at a higher rate. If you only need 50% Loan to Value, it’s going to be a lower rate.
Most likely there will be a 2% arrangement fee with a lender. You’re going to pay for legal fees for yourself and the lender at around £3,000. You’ll pay around £1,500 for a valuation report. That can go up if it’s a very large conversion.
So you’re looking at maybe £4,000 or £5,000 upfront, a 2% arrangement fee and then a rate of 7% to 10%. It’s not the cheapest, but in the scheme of things it’s only going to be in place for a short period of time before we put you onto a normal term mortgage.
What are the advantages and disadvantages of mortgaging a barn conversion?
Being able to fund the conversion using the barn as the security obviously gives you more freedom and the money to do it. If you were trying to do it without that finance, it would take you a very long time to save the money up.
So the advantage is that it allows you to proceed very quickly and get that conversion completed within 12 months. Speed is a fantastic advantage.
The disadvantages are that there are fees to pay and you have to pay fees twice – to the development lender and then to the mortgage lender. You’re going to pay two valuation fees, at the start and at the end, plus two sets of legal fees.
So there are some additional costs, but what you pay in cost, you save in time. I think it balances out fairly well, and most people tend to see the same.
Are there any restrictions to be aware of with a barn conversion?
It does make a difference whether you’re going to live in it or not. It becomes regulated or unregulated, as I’ve mentioned.
While that means nothing really to you as a client, it makes a big difference to us as the broker. It affects the lender choice, how we process the paperwork and various tick boxes for compliance in the background.
There’s no real restrictions, it’s just making sure that we have the correct path at the very very beginning. Changing halfway through can really mess with the process.
What surveys are needed when applying for a mortgage on a barn conversion?
First is the valuation report, looking at the barn as it currently is and its current value. Assuming you’ve given your surveyor the plans, they will also give you an estimated gross developed value (GDV) of that property, to tell you what it will be worth at the end.
Then, throughout the loan, a surveyor is likely to come out regularly, as the money will be given to you in tranches. You won’t get everything upfront. A surveyor comes out at each stage to check the work’s been done and you’re ready for the next lot of cash.
Those surveys are probably only £100 or so, they’re quite cheap.
Are converted barns difficult to sell?
Not in my experience. As long as they’re finished to a good standard and all the planning permissions are in place – that’s very important – and it’s been signed off at the end, you’ve got no difficulty selling.
In fact, barn conversions are very easy to sell – people like them. Everyone is looking for more space these days, since Covid. They’re coming out of the cities and like that space. A newly finished converted barn is probably going to sell quickly.
How do you apply for a mortgage on a barn conversion? What’s the process?
A lot of the lenders will be broker-only, so you will have to go through somebody like ourselves. We’ll do all the fact finding with you to understand the entire project and package it up for a lender.
It means we make the right lender choice at the beginning and present the case correctly. It should be plain sailing from there on.
What else do we need to know about mortgages for a barn conversion?
A broker can obviously help mitigate a lot of problems you might come across through the process. Presentation of the case is a really important step. We make sure that the lender understands the pros and cons.
If there are any issues with that case, such as credit record, something wrong with the property or a very high level of value, those points could be seen as negative. But if we present them correctly and mitigate them with a lender, we can make it easy to get through. Brokers really do add a lot of value when it comes to these more complex cases.
In the end, if we have issues with valuations or solicitors or anything else, we can manage those with the lender. We can work with them to find a solution that fits to reduce that risk, which is ultimately what the lender is focused on.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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