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:
- 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.
- Valuations can be based on market value, not purchase price.
- You can borrow up to 100% LTV with additional security.
- A property does not have to be in a habitable or readily lettable condition to qualify for bridging finance.
- The costs of refurbishment, renovation, or conversion can be 100% funded by the bridging.
- Affordability is based on the asset value and surety of repayment, not personal or rental income.
- 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