With demand for affordable housing far outstripping supply, Houses in Multiple Occupation (HMOs) are soaring in popularity. Offering a cheaper alternative for tenants and higher rental yields for landlords it’s easy to see why an increasing number of landlords are looking to HMOs.
While some landlords are able to purchase a property that has already been converted into a HMO many are looking at ways in which to transform an existing property into a profitable HMO. Before undertaking any kind of conversion work there are a few things landlords need to keep in mind:
• Understand demand in the local area, particular areas such as those close to a university or business parks which are likely to be in demand from tenants.
• Planning permission may be required to convert an existing property into a HMO and landlords are advised to check with the local authority before commencing any work.
• Research the rules and regulations that affect HMOs. There are rules and regulations covering fire safety and the size of bedrooms. For more information check out our guide here: link to HMO Rules and Regulations article
When it comes to financing a HMO conversion, the traditional lending market can offer limited options leaving bridging finance as an attractive alternative for many landlords. There are a number of reasons why a bridging loan can be suitable for HMO conversions including:
• Speed of funds – from enquiry to application bridging loans have a quick turnaround time. In some instances, bridging loans can take days, rather than weeks to complete; shortening the time before a landlord is able to start renting out their property as a HMO and receiving a return on their investment.
• Fees – typically lenders do not require any upfront fees for a bridging loan and will not charge a fee if the borrower chooses to repay the loan early.
• Flexible criteria – a bridging loan is traditionally secured against a property, meaning that lenders do not need to consider other traditional lending criteria such as credit scores and proof of income. For a landlord, this can be beneficial as the loan is secured against the property in question rather than their personal assets.
• Monthly repayments – unlike other types of finance, a bridging loan is not paid back via monthly installments. Instead, repayments are due at the end of the terms, meaning landlords can focus on the conversion itself while rental income isn’t being generated from their property.
• Exit route – lenders will want to know how the landlord is planning to exit the bridging facility when agreeing the finance. Exiting from a bridge to a buy-to-let mortgage is a common exit route for many landlords in this situation.
• Offer both regulated and unregulated loans as either 1st or 2nd charges
• Loans secured against all property types (residential, semi-commercial, commercial) across England, Wales and mainland Scotland
• Max LTV up to 75%
• Loans up to 30m (higher can be considered upon referral)
• No early repayment charges
• Complex offshore structures considered
• Minimum term 1 month
For more information on our bridging product range please get in touch with our sales team:
In this article we have mentioned some of tax benefits associated to with limited companies, this information is generic and as each individual’s tax affairs are different, for tax advice, your clients may want to seek independent advice from a tax advisor such as an accountant.