£1.35m Class Q Barn Conversion Finance near Padstow, Cornwall

The situation

The client had bought a group of stone and steel-frame barns on the edge of a hamlet a few miles inland from Padstow, with prior approval under Class Q for conversion to four dwellings. He was a builder by trade with two completed conversion projects behind him, this was his first Class Q scheme, and the numbers were sound: total project cost of £1.93 million including the barns at £780,000, a conversion budget of £940,000, and the balance in fees, contingency and finance costs, against a GDV of £2.3 million supported by sales of converted barns within the parish over the previous two years.

He came to us after two lenders had declined. Neither declined on the numbers. Both declined on the consent, because the words Class Q on a planning document shrink the lender pool faster than almost anything else in residential development, and what we have seen across the conversion cases we arrange is that developers routinely mistake a decline on the planning route for a decline on the deal.

What makes Class Q different

Class Q is a prior approval, and a prior approval is a narrower thing than a planning permission. The right to convert exists only if the building qualifies, the works must amount to conversion rather than rebuilding, and if the structure turns out to be incapable of carrying the conversion without works that go beyond what the class allows, the consent can fall away with the building half stripped. That is the specific risk lenders price, and it is why a Class Q file gets read differently from a full consent for the same four dwellings.

The recent widening of Class Q has brought more of these schemes to market, and every quarter we see at least one where the developer has exchanged on a barn before anyone with a structural qualification has looked at the frame. My advice on any Class Q purchase is to commission the structural engineer's sufficiency report before you approach a lender, and ideally before you exchange, because that report is the difference between a lender underwriting a conversion and a lender underwriting a gamble on what is under the cladding. This client had a full sufficiency report confirming the steel frame and the stone barn were both capable of conversion within the scope of the approval, with the engineer's methodology appended, and that single document did more work than anything else in the pack.

Why the incumbent lenders could not do it

The first decline came from the client's own bank, which does not fund agricultural conversion at all. The second came from a development lender whose credit policy excludes prior-approval schemes as a class, regardless of the engineering evidence, which tells you the decline was written years before this barn was ever on the market. Most lenders still read Class Q as a problem rather than a consent. The market that remains is small but genuine, a handful of specialist development lenders who will fund Class Q where the structural evidence is strong, the developer can build, and the values are supported.

Our job was matching the file to that shorter list, and the presentation mattered, so I put the sufficiency report, the engineer's methodology, the prior approval decision notice and a condition-by-condition commentary from the planning consultant at the front of the pack rather than burying them behind the appraisal, because with Class Q the lender's first question is never about the numbers.

The structure

The facility completed at £1.35 million, with a day-one tranche against the barns and the conversion budget drawn in monthly stages certified by the monitoring surveyor. Gearing sat at 70% LTC and 59% LTGDV, the money was priced in the high single digits annualised with an arrangement fee inside the usual 1 to 2 percent range, and the contingency was set slightly heavier than a new-build equivalent would carry, which is standard on conversion work where the building keeps its secrets until the strip-out.

The 12-month term wrapped a nine-month conversion programme with a three-month sales tail, which is tighter than we would run on a larger scheme, and it worked here because two of the four dwellings had informal buyer interest from within the parish before the facility completed. Conversion schemes sell on character. The valuer supported the GDV on the strength of the recent barn sales nearby, with the usual caution applied to the second-home element of that market.

How it completed

First enquiry to credit-approved terms took twelve working days, most of it spent getting the structural pack in front of the right people. Valuation and the monitoring surveyor's appraisal ran over the following three weeks, and legals took another three, helped by the fact that the title was clean and the prior approval conditions were few. The facility completed just inside seven weeks from first enquiry, and the strip-out started the following Monday.

The frame behaved. The engineer's report was borne out on site, the works stayed within the scope of the approval, and the first two dwellings went under offer before practical completion, with the remaining two selling inside the tail and the facility repaid within the term.