Roof space developments, particularly the conversion of existing buildings to create new apartments, are often presented as efficient development opportunities. Whilst this may indeed be correct, from a lender’s standpoint, such schemes often require additional scrutiny. Experience shows that roof space developments frequently carry a risk profile materially different from standard residential construction, and these risks must be fully understood and mitigated at the outset.
In this article, we outline the principal risk areas lenders should consider when underwriting roof space developments and explain why a more conservative approach is required more often than not.
Structural Risk and Suitability of Existing Buildings
A primary concern in any roof space development is structural risk. Many existing buildings were not designed to accommodate additional floors or significant alterations to roof structures. Initial feasibility assessments can underestimate the extent of strengthening required to foundations, load-bearing walls and the existing frame.
For lenders, reliance on early-stage assumptions without intrusive surveys introduces material downside risk, as structural remediation can rapidly escalate costs and extend programme durations. Therefore, structural surveys are key early on to establish suitability.
Construction Complexity and Access Constraints in Occupied Buildings
Construction complexity and access constraints also warrant close attention. Roof space developments are often undertaken above occupied buildings, which brings multiple challenges and risks such as:
- Restricted working hours
- Limited crane and site access
- Temporary weatherproofing requirements
- Maintaining services to existing occupants
Programme Delays and Operational Risk
Delays arising from tenant complaints or health and safety incidents can directly impact interest carry and loan repayment profiles.
Existing leases sometimes prohibit development above them and so it vitally important this legal minefield is dealt with otherwise the units may be unsaleable or considerable compensation may need to be paid to rectify this
Planning and Building Regulation Challenges for Roof Extensions
From a planning and regulatory perspective, roof extensions are rarely straightforward. Planning authorities tend to scrutinise roof additions closely, particularly in dense urban environments. Planning authorities often scrutinise roof developments due to concerns around:
- Visual impact
- Loss of daylight
- Overlooking and privacy
These complications often lead to design revisions and conditional consents. In parallel, compliance with building regulations – most notably fire safety, acoustic separation, and means of escape – can be challenging when retrofitted into older structures. Lenders should be particularly cautious where cost allowances for regulatory compliance appear optimistic or lightly evidenced.
Legal and Title Risks
Legal and title risks are another common area of concern. The ownership of roof space is not always clear, particularly within leasehold arrangements. Rights of light, airspace constraints and third-party consents can materially limit development potential. Protracted negotiations with freeholders or leaseholders can delay start on site or introduce unforeseen costs, undermining projected returns and exit timelines.
Purely acquiring the roof space without the freehold of the building it sits on can lead to major headaches particularly if access is required and scaffolding needed
Cost Certainty and Latent Defects
From a credit perspective, cost certainty is often weaker, than in conventional schemes. Roof space developments typically exhibit higher build costs per square foot due to complexity and contingency requirements.
The risk of latent defects – such as asbestos, inadequate existing services, or poor historic construction – should not be underestimated.
Appraisals should be considered and what is normal for a standard development will unlikely not be relevant in a roof space scheme
Importance of Sponsor and Contractor Experience
In addition, the experience of the sponsor and/or their contractor is very important.
Roof space developments are highly specialist schemes, and a proven track record in delivering similar projects is essential to mitigate execution risk. Lenders should place significant weight on demonstrable experience rather than general development credentials.
Exit Risk and Marketability
Finally, exit risk must be considered carefully. Apartments formed within roof spaces can suffer from compromised layouts, restricted ceiling heights or limited natural light if design quality is poor. These factors can adversely affect sales values particularly in more competitive markets.
Conclusion – Why Roof Space Developments Require Conservative Underwriting
In conclusion, while roof space developments can be viable and attractive in the right circumstances, they demand a more conservative approach. Robust due diligence, realistic cost assumptions and experienced sponsors are essential. For us as lenders, disciplined underwriting remains the key safeguard against the inherent complexities of building upwards rather than outwards.
– Perry Kurash, Director and Head of New Business
Speak to a Specialist Development Finance Lender
If you are considering a roof space development, or another form of commercial or residential development, get in touch with our team at BLG Development Finance. Our team understands the unique risks involved in all project types and structures complimentary funds accordingly. Start discussions around getting your project off the ground now with a simple email or phone call.