The Daily Telegraph - Saturday - Money
‘I bought a pub for £800k – now it’s on sale as a £2m luxury home’
Fancy turning an old bar into lovely new abode? Derek O’Neill’s experience will illuminate you. By Fran Ivens
The great British boozer is in decline. More than 500 freehold pubs were sold last year, with over a third of those being converted from local drinking spots for alternative uses.
A combination of rising business costs – including ruinous energy bills – and more cautious consumers, conscious of the financial impact of the cost of living crisis, has created a perfect storm for the sector.
And, as with other areas of property, when owners go to sell they often find prices have fallen.
The average sale price of a freehold pub fell 23pc in 2023 to £ 545,736, according to Fleurets Survey of Pub Prices 2024.
But what about the buyers? Nearly half ( 45pc) of pub sales last year went to individual or small buyers, rather than larger developers or corporations.
Converting a pub to a home is a popular idea, and the move is often welcomed by councils.
However, there are planning laws in place to protect pubs, so you may need a change of use application before getting started, according to Clifton Private Finance.
This is before you even think about conversion and building costs. It is certainly a significant undertaking, but could it be worth the pay-off?
Pubs are often located in areas of high demand, in the village square or near transport links. They have history and charm, lending themselves to featureful and unique houses.
Sam O’Neill, head of bridging at Clifton Private Finance, says: “There has been a steady increase over time in buying pubs for conversions.
“Pubs have been closing at a really alarming rate over the past few years.
And there is obviously a bit of a housing shortage, so it depends on how you look at it. It could be a case of solving one problem with another.”
MAKE SURE THE PROPERTY CAN BE CONVERTED
It was the central location and the look of the property that attracted hobbyist developer Derek O’Neill (no relation to Sam) to the Zetland Arms in the centre of Warwick.
“It closed during Covid and at that time it was owned by Punch Partnerships. There was an issue with getting a new fire certificate so the company had already sorted the planning permission for it to be converted to a house,” says Derek.
Many communities mourn the loss of a pub, and here was no different.
Residents were sad to see their local disappear, but planning documents showed that there were 18 other pubs within 800 metres, leaving plenty of options for thirsty residents and visitors alike.
While Derek was lucky to have the conversion pre-approved, a change of use application is a complicated and often lengthy process, which has to go through the local authority. Under planning regulation, pubs are categorised as sui generis, meaning that they are in a group all of their own.
Factors taken into account when considering an application are likely to include the size of the pub, the materials you will be using, and how well your project fits with the character of the local area, according to home design and renovation firm British Dwelling. If you are thinking of buying a property to convert, but it doesn’t yet have planning permission, one solution is to go for an “option”, Sam explains.
“Entering into an option agreement works whereby the buyer only makes the purchase at an agreed price if planning permission is approved.”
This avoids the risk of being stuck with an unconvertible property.
DO YOU NEED TO BE AN EXPERT?
Sam’s advice is to be realistic about what you can achieve, and what sort of project you can reasonably take on.
“If it’s a huge Wetherspoons in a listed building, you are unlikely to get a mortgage or loan for it without significant experience,” he says.
“But if it is a small job – already a pub with some residential rooms already upstairs – then that is an easier sell to a lender.” Even so, you are likely to need an architect and project manager to support the planning, especially if you do not have much experience of this type of work.
In Derek’s case, he worked with his business partner and a small team to convert the property themselves.
The costs ran to around £700,000 after he bought the property for £800,000. However, the pub has now sold subject to contract and was on the market for £ 2.15m, so he is likely to recoup his expenses.
The property, listed with Knight Frank, offers six bedrooms, five bathrooms, a gym and a home office. It has a total floor space of 5,339sq ft.
“It always attracted a lot of interest,” says Derek. “From a local point of view, they were pleased it was being converted into a home rather than another set of apartments.”
On average, those looking to convert a pub to a residential property should budget £ 1,500 to £ 2,500 per square metre (£150 to £250 per sq ft), although this will, of course, differ depending on the size and type of project.
Derek warns that a conversion of this type is not for the faint-hearted.
“Pick a size of property that suits you – a 5,000sq ft house is a very big job. If it is a normal two- storey, three- bed property, have a go but make sure you have got your budget right. We had a few people who said ‘ I thought we could do it up for £150,000’.”
Because the property is listed, extra care had to be taken making use of modern technology.
Instead of traditional wiring and light switches that would have ruined the walls, the house is now fitted with wireless switches that rely on radio frequency and can be operated remotely. However, alongside new features,
Derek was keen to preserve the pub’s history and charm. “Back in the 1820s, it was a restaurant, so it has always been a public house and the family would have lived upstairs. We wanted to keep the heritage, so we relocated the original bar top to the basement and created a small bar down there.”
The pub, he says, was in bad condition when he bought it in the summer of 2022. Although it was little surprise to his team, finding the right materials for the work was a struggle; they had to go to Wales in order to source enough reclaimed wood to replace missing floorboards. “It just shows if you are trying to do it on a tight budget, you will soon get a shock,” he adds.
Budgeting is, of course, a key element of any renovation or conversion project. Clifton Private Finance recommends allowing an extra 10pc-15pc of the total build costs as an additional fund for unforeseen expenses.
And unless you have enough cash lying around, you will have to think about financing. Sometimes, owing to the nature of the properties, it is not possible to take out a straightforward mortgage against them, so more sophisticated options are needed – possibly from a specialist lender.
There are also the usual property considerations, such as paying for a survey, legal fees and stamp duty. Although stamp duty operates differently for commercial properties, as does VAT, it is worth investing in advice to make sure the project is as tax-efficient as possible.
“Everyone has to start somewhere,” says Sam. “But doing a commercial conversion is not the place to start. If you are a builder or a developer who has done a handful of renovations, then it could be a good step in.”