Lenders make the distinction between heavy and light refurbishment mortgages.
From the lenders perspective a light refurbishment property is
- A property that is currently habitable (including working utilities).
- Works need to be undertaken to improve it’s condition. It can then be let out to a tenant, or improved to maximise its value.
- Depending on the lender the works should be completed within 3 to 12 months. The budget should be in the region of 15% to 25% of the purchase price of the property.
- The works should EXCLUDE any planning permission approvals, structural works or work that requires building regulations approval. There should not be any change to the overall use of the property. There is one lender that will consider an exception to this rule as long as there is detailed planning in place. And the applicant must have a track record of similar projects and a high net worth.
You will have read in the section above that there are general rules on when an multi let, HMO property requires a licence. But the local council can change this and implement their own requirements. Lenders therefore cannot keep track on which councils have moved away from the general definition of when a licence is required. The lender will therefore require confirmation in writing or email, from the council when the property does not require an HMO licence.
For HMO’s properties that do not require a licence the next important factor in selecting a lender is:
- Will the lender value the property based on the market rent as a multi let, HMO or a single family rent. This is extremely important to you and your HMO mortgage broker because lenders assess this differently and the amount you can borrow is dependent on the market rent.
- The number of tenants. Some lenders limit the number to 4. Some lenders have no limit.
- Does each tenant have their own tenancy agreement or have they signed one tenancy agreement?
- Do the rooms have locks on the doors? This will be reported to the lender by the valuer when they visit.
You will see that mortgages for HMO or multi let properties can be complicated and this is why it is best to talk to an HMO mortgage broker, who is very active in this market. It is a complicated sector that is changing all the time and if you wish to avoid wasting time and money, then please call us for a free assessment.