HMO Bridging
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HMO Bridging
Georgina Gray explains bridging finance for Houses of Multiple Occupancy (HMOs).
Can I get a bridging loan for HMOs? What is the typical Loan to Value ratio available for HMO bridging loans?
Yes, you can get a bridging loan for an HMO. Lenders will consider whether the HMO is already licensed or if it needs work first to get that licence.
The key to getting a bridging loan accepted, as always, is having a clear plan for the property and a realistic exit route. Loan to Value ratios for HMOs tend to go up to 75%. With some lenders, though, the maximum is 70%.
It also depends on the property’s condition and the experience of the borrower. It helps if you’ve run an HMO before, or purchased a property to turn it into an HMO, and are an experienced landlord.
What are the typical lengths of bridging loan terms available for HMOs?
Usually the range is from 6 to 18 months, short enough to keep things moving, but long enough to cover refurb works and get any planning in place.
How is affordability calculated for an HMO bridging loan? Is potential rental income taken into account?
With bridging, affordability is mainly based on the exit strategy, not personal income. The potential future rent that you can get for that property is important. It’s the exit plan that the lenders are most interested in – which is usually refinancing it or looking to resell.
How quickly can the funds be released after application approval?
It’s fast finance. Once the valuation and the legal side of things are done, funds can land in days rather than weeks. The main speed factor is how quickly documents and searches are completed.
Can I use the bridging loan to fund renovations or improvements to the HMO? If so, are there any conditions?
You can, yes. Many lenders offer refurbishment bridging, where the loan includes the purchase plus the works. You’ll usually need a schedule of works and costings, and sometimes a clear plan of staged releases to set out how you will access the additional money for the refurbishment.
Can I get a bridging loan for HMOs that require planning permission changes or refurbishment?
Yes. Lenders often accept planning for heavy refurb or conversion projects. They want to see the planning route, timeline, and how you’ll repay once the work is completed on the property.
Can the bridging loan be used to purchase an HMO at auction?
Absolutely, yes. Bridging works really well for auction timelines because the funding can be arranged quickly. It helps you meet the usual 28-day completion period involved when purchasing a property from auction.
How do I apply for an HMO bridging loan and what documentation will I need to provide?
Typically you’ll need ID and proof of address, details of the property, a valuation report, your plan for the work that you’re looking to do, evidence of your exit strategy – and sometimes proof of your experience with HMOs, if you have it.
The more upfront information you can provide, the faster the process tends to move.
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What exit strategies do you typically see for HMO bridging loans?
The main exit strategies are refinancing and sale. You can refinance onto a long-term HMO mortgage and then pay off the bridging loan, you can sell the property, or refinance it based on a higher post-refurbishment valuation.
The exit always needs to be realistic based on the current market conditions. Something needs to be put in place, thought about and discussed before application.
What else do we need to know about HMO bridging loans?
We’ve covered most of it. Bridging is mainly about speed, clarity, and planning. Just have that in mind if it’s something you’re looking to apply for.
Key Takeaways:
- Bridging loans are available for Houses of Multiple Occupancy (HMOs), whether they are already licensed or require work to obtain a license.
- The typical Loan to Value (LTV) ratio for HMO bridging loans is up to 75%, sometimes limited to 70% by some lenders, and depends on the property’s condition and the borrower’s experience.
- Loan terms usually range from 6 to 18 months, which is sufficient for covering refurbishment works and obtaining necessary planning.
- Affordability is primarily assessed based on the exit strategy (usually refinancing onto a long-term HMO mortgage or selling the property) and potential future rental income, rather than personal income.
- Bridging loans can be used to fund renovations or improvements, and they work well for purchasing HMOs at auction due to the fast release of funds.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
THE FINANCIAL CONDUCT AUTHORITY DOES NOT REGULATE MOST BUY TO LET MORTGAGES.
SOME BRIDGING FINANCE IS NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY.
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