Barn conversions can be an excellent investment opportunity for property developers. Not only do they provide an opportunity to sharpen lesser-used skills, but they can also be a very lucrative endeavour indeed, especially given the increase in demand for rural properties. However, while barn conversions do provide a unique opportunity, they can come with unique problems. One such problem is finance.

Broadly speaking, traditional lenders are hesitant to lend to uninhabitable properties. As barns often fall into this category, it can be more difficult to source finance for barn conversions than when purchasing residential properties. While some barns might look fit for purpose, they must meet certain criteria in order to be considered habitable. For this reason, property developers often make use of bridging finance to raise critical funds needed to kickstart a project, with more traditional methods of finance coming later.

In this article, we will cover how you can finance a barn conversion, whether a bridging loan can be used, and ensure you can finance your next project.

Barn conversion projects – what to consider?

Renovation and refurbishment projects are almost never a simple task. There is a lot to be considered, ranging from obtaining certain documents to carrying out actions that add value to a property. With barn conversions, this can be amplified to a greater degree, making such projects more complex than others. As such, having a solid grasp of what to consider before starting is a good idea. Here are a few key factors you should keep in mind.

What makes a property uninhabitable?

For a barn conversion to be a success and, more importantly, a profitable venture, it must be converted into a habitable property. While it might be easy to assume something with four walls, a roof, and some basic furnishings would be sufficient, a property must meet strict criteria in order for it to be considered habitable. These criteria are as follows:

  • The property must be structurally sound. This means that the property must have a minimum of four walls and a roof with no risk of collapse.
  • The property must not be exposed to radioactive pollutants.
  • The property must not have clear threats to life that would result in local authorities issuing a prohibition notice.
  • The property must not have high levels of asbestos and other such materials, which would result in extensive damage or outright deconstruction during removal.
  • The property must have basic utilities, including a functional kitchen, functional bathroom, and some form of heating.

Properties do not need to be in mint condition to be classified as habitable. It is perfectly acceptable for a property to meet the above criteria, but still have minor damage that requires a repair and refurbishment project. However, while this might be acceptable from a legal perspective, it may diminish selling opportunities.

Planning permission

Conducting a successful barn conversion project requires more than just a suitable property and a plan to add value; certain documentation must be obtained and laws followed. One such important document developers must obtain during their barn conversion project is planning permission. Failing to acquire the proper planning permission for your project may well result in an unexpected additional expense.

Changing property class

Depending on the specifics of your conversion project, you may be required to change the classification of the barn before any action can take place. Some barns may be converted without a class change, though this is typically reserved for small changes and small properties. In order to make sweeping changes to a large barn, a class change is likely in order.

How much might a barn conversion cost?

A barn conversion is quite an intensive project, one that can reach high costs, given the various factors involved. While smaller conversions may escape the higher cost brackets, typically floating around the £150,000-£175,000 mark, larger projects can see costs soar in accordance to project scale and complexity. Naturally, materials, labour, equipment, and size are key contributing factors for a barn conversion project. For example, using a steel frame is considerably pricier than wood or other such materials, and can see overall costs for the project rise to around £300,000. In addition to materials, developers must also factor in additional costs, such as the transport of said materials and the removal of hazardous substances, for example, asbestos.

In addition to construction costs, developers must also consider other expenses depending on their situation. The purchase of the land itself is one such cost, which can carry additional fees depending on how the property was acquired. Stamp Duty Land Tax (SDLT) is another associated expense, alongside legal fees and payment of services rendered by various professionals. Developers must also budget for the repayment of debt. Lastly, given the complexity of barn conversion projects, it is advisable to set aside some funds to cover unexpected costs.

Can a bridging loan be used for barn conversion?

Bridging loans can prove to be an excellent tool for funding a barn conversion project. In fact, bridging loans lend themselves well to this sort of project, as they provide an excellent proving ground for the benefits of the loan to take effect. Unlike other forms of finance, bridging loans can be used to raise large sums of money for a wide range of applications. This includes the purchase of an uninhabitable property for a conversion project, something mortgages simply cannot accommodate in most cases.

Due to the ability to raise large amounts of cash, bridging loans allow developers to purchase their preferred barn, while keeping some money in reserve for emergencies. What’s more, the required cash will be made available quickly, usually in as little as a few days, upon a successful application. When buying property at auction, this degree of speed is invaluable, and makes bridging loans an effective solution for a barn conversion project.

Wrapping up

All in all, bridging loans are perfectly capable of meeting the needs of your barn conversion project. They offer property developers a range of benefits perfect for such a project, ensuring the required capital is raised quickly, and without raising any obstacles with regard to application. This makes them well-suited for the purchase of uninhabited property, a benefit certain other solutions cannot provide. However, bridging loans are a form of secured loan, meaning they do require the borrower to put forward assets for use as collateral. While this is largely where bridging loans draw their benefits, it also means the borrower shoulders a level of risk not present in unsecured loans. As such, it is important to seek professional financial advice before taking action.