Snowdon Homes, who signed a conditional contract to buy the land, has applied to convert the site to the rear of Manor House in Gold Street into 40 two-bed, three-bed and four-bed homes.
Half of the homes - which would all have two parking spaces - would be affordable rented housing with the other half shared ownership.
A planning statement said: "We feel the proposal not only complies with policy requirements but is well positioned to serve the new community with quality affordable homes and enable good links with the rest of the town."
Dunkelman & Son, who operated there from the late 1970s, moved to Magnetic Park in 2017.
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The old Manor House - which dates back to the 18th century - forms the frontage to the site on Gold Street, built of ironstone and although not listed it is classed as a heritage asset to the town.
A number of more recent extensions made to the eastern elevation of the house are proposed for demolition, which would return the building back to its original extent.
Marketers said there was some interest in the factory building from self-storage operators and hauliers.
But they concluded they were unsuitable for modern day warehousing and that the building had 'limited' prospects of future use for employment.
The development would also include green space and a children's play area.
A planning statement added: "The house types are laid out with a mixture of floor plans, some include quite open plan rooms and all have good size rooms which allows for future changes in residents needs and lifestyles.
"The houses could accommodate alterations as people’s circumstances change giving residents agency over their property and allowing them to remain included in their neighbourhood."
Section 106 funds could be used to help fund education, libraries, public transport and health care provision.
A decision could be made by January next year.