How quickly can the funds be released after application approval?

Every lender claims to be fast. We hear that all the time. With an HMO, if money is being lent towards refurbishment works, that adds additional complexity. Typically, lenders want a valuer to go out and make sure the property is worth what you’re paying for it.

If you’re refurbishing, they’ll typically send an asset manager or even a quantity surveyor out – and that all builds time in.

If it’s a light refurbishment and won’t cost more than 10% or 15% of the purchase value of the property, you may get more streamlined products and processes.

Some lenders use an automated valuation method, using software to get comfortable with what you’re paying for the property. But if you’re converting to an HMO, they’ll need an asset manager, and the timescales will go north. Four weeks is not impossible, but a lot needs to be done to meet that timeframe.

Can I use the bridging loan to fund renovations or improvements to the HMO? Are there any conditions?

You can. Lenders will typically fund the cost of works in arrears. When you start refurbishing a property, you need money up front for the work. Once you’ve spent that money, the lender will reimburse you.

Lenders have different minimum amounts they’ll fund, so we talk to clients about that depending on their project. If you’ve only got £15,000, for example, you’ll want a lender that can fund smaller drawdowns. Most want you to put in £25,000 or above, but they can sometimes do less.

Can I get a bridging loan for HMOs that require planning permission changes or refurbishment?

Yes. Introducing planning into these scenarios obviously complicates things. If you’re creating an HMO with six bedrooms or less, you don’t generally need planning. However, some councils have withdrawn permitted development rights in certain areas, called Article 4 areas.

If you’re planning an HMO in an Article 4 area, you’ll need planning permission regardless of the number of bedrooms. We wouldn’t be able to borrow money for the works until we can prove we’ve got permission.

You can still get a bridging loan to purchase the property, but it wouldn’t be based on the eventual gross development value of the HMO without evidence of planning permission.

Can the bridging loan be used to purchase an HMO at auction?

Yes, definitely, and this is a major reason to use one.

How do I apply for an HMO bridging loan, and what documentation will I need to provide?

Just come to an experienced broker. Typically, they’re not the same brokers as for standard residential mortgages. Often, they are involved in Buy to Let, giving them experience of arranging bridging finance to create HMOs.

If you came to us, we’d have a chat about the project, how much cash you’ve got, your experience, and we’d run through the numbers. Some lenders require a higher degree of profit in the deal than others. Some lenders simply won’t lend if they don’t think it’s a good deal for you.

Speaking to a broker early on lets you use us as a sounding board and see if a particular property investment opportunity makes sense. We can also start talking to you about the things that bridging makes possible.

One of the key elements is making sure there’s an exit. The bridging lender won’t assess your eligibility on the basis of your income, but they want to make sure they’re going to get paid back.

That could be through the sale of the property, although that’s unlikely if you’ve bought it to generate a monthly rental income. Usually, they get paid back by the bridging loan being redeemed by another lender, via an HMO Buy to Let mortgage.

What else do we need to know about HMO Bridging Loans?

This is quite a nuanced area. New lenders are coming to market all the time, who all claim to be reinventing the wheel.

Ultimately, it’s all about whether the deal stacks up. If you want to chat to us about this, just get in touch. We’ll talk to you about your plans and how our finance partners can potentially help make it work.

Key Takeaways:

• An HMO bridging loan is used for fast purchase and refurbishment of properties being converted to HMOs, acting as a short-term ‘bridge’ to a standard HMO mortgage.
• The loan term is typically 12 months, extendable up to 18 months or more for complex conversions.
• Net funding is usually closer to 80% Loan to Value (LTV) of the property value after interest is factored in.
• Affordability is based on current value and Gross Development Value (GDV), with rental income only factoring into the theoretical future GDV.
• Lenders typically reimburse costs for refurbishment works in arrears; planning permission is mandatory for projects in Article 4 areas before works can be funded.
  
  

The Financial Conduct Authority does not regulate some forms of buy to let and bridging finance.

Think carefully before securing other debts against your home or property.

Your home or property may be repossessed if you do not keep up repayments on a mortgage or other debt secured on it.

There may be a fee for mortgage advice. The precise amount will be agreed with you before proceeding.

Brunel Bridging Ltd is registered in England and Wales. Registered Number 14455169. Registered Office: Elm Tree Farm Estate, The Sheepway, Portbury, Bristol, BS20 7TF.
Brunel Bridging Ltd is a full member of the National Association of Commercial Finance Brokers (NACFB) (membership number 31826) and as such, adheres to a strict industry-recognised Code of Practice.