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19% drop in office to residential conversions

Figures from the Department for Communities and Local Government show that office to residential conversions fell from 2,942 in 2014/15 to 2,388 in 2015/16.

According to Saving Stream, one of Europe’s largest and fastest growing peer to peer secured lending platforms, bank lending to the property sector fell during the financial crisis as banks de-risked their balance sheets. It was further reduced last year following the Brexit vote.

Saving Stream adds that even the newer challenger banks have reduced their lending to the property sector, which has left many developers without funding.

Rules surrounding office to residential conversion were relaxed in 2013 and made permanent in April 2016 with the purpose of tackling the housing crisis.

However, Saving Stream says that without the funding necessary to get projects off the ground, developers have not been able to make the most of these changes.

The firm also believes that uncertainty over how Brexit might affect property prices, particularly in London where a high proportion of buyers are from overseas, has also contributed to the fall in conversions over the last year. Some developers will have put projects on hold in order to determine their viability following the referendum result.

Developers are now turning to other forms of finance such as P2P lending or private investment.

Liam Brooke, co-founder of Saving Stream, comments: “When there is a clear need for more residential development across the UK, it’s surprising that the number of conversions has fallen over the last year.

“Office to residential conversions tend to be very successful and with the relaxing of the rules made permanent early in 2016 we would have expected the number of conversions to be on the rise.

“The lack of bank funding available to developers presents an opportunity for alternative finance providers to step in and fill this gap.

“Indeed, since the Brexit vote banks have reduced their exposure to the property market even further giving private investors access to better investment opportunities.”

“Densely populated areas such as London and the South East have been particularly badly affected by the housing crisis. In these areas, however, there are also likely to be higher amounts of redundant commercial buildings which could easily be converted.

“We’ve successfully helped to fund a number of projects converting vacant office buildings into residential spaces such as Old Hall Street in Liverpool City Centre with a loan of £3.8 million.”

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