HMO Bridge-to-Let Finance
HMO Bridge to Let Process
Conversion into HMO, What's required?
Conversion into an HMO will require substantial work:
- Changing Room Layouts
- Fire Alarm Installation
- Fire Safe Doors
- Fire Escape Windows
- Communal Cooking Facilities
- Increased Kitchen Storage Space
- Additional Bathrooms
- Parking Designation
- Individual Room Controlled Heating
- Increased Room Electrical Sockets
- Individual Room Ventilation
- Individual Room Controlled Heating
- Individual Room Additional Electrical Sockets
- Individual Room Door Locks
You will want to establish a Schedule of work. What needs to be done, when and the estimated cost. To ensure you are off to a good start and furnish a valuer prior to conversion to understand the end goal.
The more work you need to do will increase your HMO Conversion Costs.
Do you need planning permission to convert a property into an HMO?
If you are creating a small HMO (up to six tenants) then you typically don't require Planning Permission. This is known as "Permitted Development Rights". Unfortunately, not all councils are the same. In some council areas, they have an "Article 4 Direction". This can require the conversion of a C3 House to C4 HMO to require planning permission. In addition, many structural changes to a property will require Planning Permission, HMO or otherwise. This is why it is recommended you talk to a Local Planning Consultant to determine if planning is required or not.
How long will an HMO Conversion take?
The duration to convert a residential property into an HMO Property depends on what you start with. You may need to change the room layout, ensuring rooms meet the minimum sizes. This can take up significant time. The property may only need new fire doors and fire alarm systems and basic tidying up. This can be completed quickly if you have a team ready to go. Cash Purchase or Short-Term Finance is required to convert the property. You will typically take out bridging finance for six months. Though with a good mortgage adviser and you prepared, you can exit the short term finance earlier. Whilst you initially pay the six months interest on the short-term mortgage upfront. If you exit the mortgage within 2 months. You can typically expect a refund of the remaining 4 months interest.
When is an HMO licence required?
There are two types of HMO Licences: National Licensing and Selective Licensing. Neither should be confused with HMO Planning Permission. Selective HMO Licensing is where a council selects an area of the city. Properties in this area will have to obtain a licence from the council. Each council differs, so check with yours. National Mandatory HMO Licensing is much more simple. You will be required to have an HMO Licence if the property is rented out by 5 or more people. There are a few exemptions, such as: - if 5 or more people are close relatives. - there are no shared facilities (toilet, bathroom, kitchen) You need your HMO licence prior to renting to 5 or more people. If you are purchasing a property, our mortgage lender will want to see evidence you have applied for the licence. If the property is not HMO ready, you will require bridging finance to convert it.
Is Bridging Finance expensive?
It is. If you do not want to pay the interest on short-term bridging finance to convert the property. Stick to renting the property as a single-let. The expense is a means to an end. It gets you to the final goal of owning a House of Multiple Occupation (HMO). In business, you would think of this as a sunken investment. You can lower the cost of Bridging Finance by obtaining a low loan to value loan. Having a large deposit will help you keep down the mortgage costs. The quicker you can convert the property into an HMO, the quicker you can exit onto an HMO Mortgage. On a six month bridge, completing the conversion in two months. Will get you the remaining month's interest refunded.
Can I get packaged bridge-to-term mortgage?
Yes. We have mortgage lenders that will offer you the short-term bridge and the exit onto term finance with them. The benefit of such an arrangement is that the HMO Mortgage is guaranteed. As long as you make no significant changes to the plans during the conversion. You will also get two valuations, the current value and the estimated end valuation after conversion.