HMO Bridging Loan

HMO Bridging Loan

A HMO bridging loan is short-term finance typically used to fund the purchase, refurbishment, or conversion of an HMO property.

What is an HMO?

HMO or House in Multiple Occupation is defined as a residential property with 3 or more individuals that form more than 1 household with shared facilities such as bathroom and kitchen. Properties this size typically do not need a license, although it can vary depending on borough.

A HMO property rented out to 5 of more people forming more than one household, shared facilities and at least 1 person paying the rent needs a license from the local authority. An HMO or Sui Generis with 7 or more people require planning permission.

Properties in an area or borough with an Article 4 Direction requires planning consent to convert a property into an HMO consisting of 6 people or fewer. In simple terms, this is to protect an area from an excessive concentration of a particular style of property.

Why do property investors and developers use HMO bridging loans?

A short-term HMO bridging loan is more expensive when compared to a long-term buy to let mortgage. However, if used in certain circumstances, the product has the following advantages:

  1. A bridging loan typically takes weeks to arrange compared a BTL finance that can take months. This is especially useful when buying at auction or if you need to act swiftly to compete with a cash buyer to secure a property at a discount.
  2. Valuations can be based on market value, not purchase price.
  3. You can borrow up to 100% LTV with additional security.
  4. A property does not have to be in a habitable or readily lettable condition to qualify for bridging finance.
  5. The costs of refurbishment, renovation, or conversion can be 100% funded by the bridging.
  6. Affordability is based on the asset value and surety of repayment, not personal or rental income.
  7. Interest is typically rolled or retained, meaning there is no monthly interest to pay during the term of the loan.

HMO Bridging loan key features and charges

  • Loan amount from £100k to £25m
  • Rates from 0.54%pm
  • Loan duration from 1-18 months
  • LTV up to 75% LTV
  • LTC up to 100% with additional security
  • LTGDV up to 70%
  • Interest Rolled, retained or serviced
  • 100% cost of building works in arrears
  • Lender arrangement fee from 1- 2% of loan amount
  • Early repayment charges from 0-1% of loan amount
  • Exit fee from 0-1% of loan amount

 

 

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