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HMO conversions loans explained:
These are short-term loans (typically less than 2 years) that provide property investors and developers of all experience levels the funding to purchase (or refinance) a property that is to be converted and re-configure to another type of property. The loan typically comes in two types.
Type 1 – Provides funds to acquire the property but not the cost of the works to convert the property. Interest is retained or paid monthly. These loans can be more suited for smaller loans or where you don’t need the work funded because you have funds available. The lender fees tend to be lower as you do not require a monitoring surveyor.
Type 2 – These loans provide funds to acquire the property, 100% of the cost of conversion works (split into stage payments over the term of the loan) and the interest is added to the loan, so there are no monthly payments.
These loans provide a much higher level of borrowing, and better cash flow as both the works and interest are funded by the lender. These loans do have a higher minimum loan size, and you will also have to pay the fees for the monitoring surveyor to visit the property to verify the works.
There is no limit to the type of properties that can be converted, but popular projects include:
When the conversion works have been completed and the property has the necessary building control certificates, Advocate Finance can provide advice and arrange mortgages should you choose to keep and rent the property instead of selling it. This is what most of our property investors undertake to raise capital funds for their next project.
It is beneficial to keep in contact with the adviser that arranged the conversion loan so that they can obtain the mortgage approval a few weeks ahead of the work being completed; it speeds up the process so the refinancing can take place quicker.
Some lenders have flexible solutions that allow you to acquire the property with bridging loans and then apply for planning.
Once planning is granted, the lender provides a new loan that includes the facility for the work to be carried out. This saves time and cost for having to change lenders and can be quickly implemented.
This depends on how many rooms the HMO will have post-works and if there is an article 4 directive implemented by the local authority.
If there is no article 4, then planning is required for 7 or more rooms.
Alternatively, if you convert the house to a 6-bed HMO and there is no article 4 directive, then this should be allowed under permitted development.
Always check with the local authority, architect, or planning consultant.
Yes – This is possible as long as the lender is comfortable with where you plan to reside during the works and post-works.
Our advisers offer a FREE consultation, so please give us a call or use the “Get in Touch With Us” form at the end of this page.
Advantages of HMO Conversion Loans
Disadvantages of HMO Conversion Loans
Important Information
ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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Advocate Finance Ltd, registered at 55 Crown Street Brentwood, Essex CM14 4BD. Company Register number is 05579380. Authorised and Regulated by the Financial Conduct Authority. Our FCA registration number is 592830.
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We are registered with the ICO, Z1654205 and you can check via www.ico.org.uk.
We conduct both regulated and unregulated business and therefore not all products provided through us are regulated by the Financial Conduct Authority. We source mortgages and loans from a panel of lenders.
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Advocate Finance is a mortgage and finance brokerage firm that specializes in securing loans and mortgages for various types of properties, including single properties, large portfolios, commercial sites, and development projects. They assist clients regardless of credit history, circumstances, or legal ownership, aiming to provide tailored financing solutions