One of the most popular investments in today’s market is the “HMO” or House of Multiple Occupation. This type of investment often delivers a much higher rental yield than a standard buy to let investment property as the property is rented by the room rather than as a single property on one tenancy arrangement.
The key issue when buying a property with the intention to use it as a HMO is that the property will require a reasonable level of refurbishment prior to being let, which means a bridging loan will often be the form of finance used to facilitate the purchase.
When considering the options available, one issue investors often have is that many lenders can only offer a maximum facility of 75% of the property purchase price and where additional funds are required to help with the cost of refurbishment, there are hurdles the investor will need to overcome to secure the additional funds, not to mention additional costs.
Fortunately, as the bridging loan market becomes more and more competitive, lenders are bringing new and innovative products to the table to combat these issues. One such product provides a loan of 85% of the property purchase price, subject to that amount not exceeding 70% of the post-works value (to be determined by the lender’s valuer). The benefit of this is that the investor can secure a gross loan of 85% of the purchase price on day 1, rather than having to wait until they’re part way through the project which can often cause delays. Additionally, the level of previous experience the investor is required to have is relatively light, with the lender only requiring one similar project completed in the previous 5 years.
As the product offers a loan to value much higher than an investor may normally be used to securing, they may expect the cost of the product to be relatively high. However, where the project is considering light in nature, requiring no planning consent or building regulation sign off on works, the rate of interest is just 0.80% per month with a 1.95% arrangement fee and no additional exit penalty; extremely competitive in today’s market.
So far, this aggressive new approach to the bridging market has seen a surge in applications with the lender and hopefully, other lenders will follow suit.
If you are looking to purchase a property with a view to converting it into a HMO contact A Move Brokers on 01244-478-780.
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