Bridging loan for house to HMO conversion

The clients: We were contacted through recommendation by a developer/landlord and asked if we could achieve a high loan to value bridging loan over 12 months to enable the client to convert the property to a HMO and then refinance it onto a term mortgage. The clients had experience within this sector but had not used a bridging loan before. The client had previously used buy to let mortgages and then re-financed 2-5 years later, but due to expansion he now wanted to refinance quicker and release the cash more rapidly for the next purchase.

The property: The property was a freehold 4-bedroom house with a large loft and garden. The client was looking to do a loft conversion (so increasing the number of rooms in the property) and also a larger living/kitchen space for the home. Overall both would increase room rent value for the yield.

The finance: The client was looking for a loan of 75-80% LTV net. From the start, many lenders would not be considered because of the upfront 12 months interest deduction. The client was able to prove that his company could afford the monthly payment, therefore allowing them to get a serviced bridge which means the net cash upfront is 75%.

– A 12 Month bridging loan which allows the client to convert and refinance the HMO
– Monthly Serviced payments rather then interest deducted upfront
– No exit fees to break the finance early
The Application: As this was bridging finance, the turnover is very quick. The valuation and legal work were instructed within 24 hours, unlike normal bridging we did have to prove income and outgoings within the company purchasing the property as the lender are accepting monthly payments rather than the interest taken upfront. 2 Weeks later the bridging offer was sent to the client’s solicitor. Once the offer had been accepted, the funds were ready to be drawn down the following week.

Property value: £650,000
Loan amount: £487,500
Expected value (after works): £800,000 (This means we can re-finance @ £600,000 releasing the bridging loan and covering the purchase costs and works)
LTV: 75%
Rate: 0.68% per month
Term: 12 months
Lender facility fee: 2% (£9,750)
Lender exit fee: interest for 1 month
Monthly payment: £3,381
Rental income after works: £700 per room – x8 Rooms £5,600

Detail correct at the time of sourcing their deal.

Ashley Slade
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