HMO’s – adding value to the portfolio
In 2017 we seen an increase in enquiries for HMO (House of Multiple Occupation) finance products. Many property professionals are being attracted to the HMO market, especially your traditional BTL investors, who can’t help but see the benefits to a significantly enhanced yield. In Fact, the UK has seen growth over the last decade within the HMO market, but there is still a lot of questions asked around how the asset is valued and licencing and planning requirements.
Historically HMO’s have potentially been seen as not the best accommodation, with the “rent it and forget it” approach, however, there is now a demand for an immensely different type of HMO. Being a national finance brokerage, we have seen landlords from across the UK put more thought and effort into their HMO projects, with the focus on bringing a product to market that is attractive to the professionals, as this is where the current demand is coming from, for financial and social reasons. This has been extremely positive for the market and we have seen this type of accommodation and investment become more mainstream.
One of the challenger banks, the Commercial lender Shawbrook categorise HMO’s in 4 ways:
HMO 1: The security can be used on a multi let basis but: the works to convert are minimal and it is logical that an investor is more likely to purchase a cheaper property and convert than pay a premium. (this will be valued on a private dwelling basis PD).
HMO 2: The property has no article 4 directive, there is no planning in place and other units are sold as PD. However, the fabric of the building has had significant change to be utilised as an HMO which would separate this from a PD. There must be a viability for this to be sold as an HMO with the valuer to consider comparable and yields taking into consideration Gross and Net rental amounts. (This will be valued on the basis of market value).
HMO 3: Article 4 is in place and therefore the property is clearly viable as an investment. Valuer to consider comparables and yields taking into consideration Gross and Net rental amounts. (This will be valued on the basis of market value).
HMO 4: Sue Generis planning in place to be used as a large HMO (7 bed +). Valuer to consider comparables and yields taking into consideration Gross and Net rental amounts. (This will be valued on the basis of market value).
When financing your HMO investments, its important to use and understand the right products to enter and exit the deal, especially if you are looking to build long term relationships with the market leading lenders. The team at Ramsay & White have access to short term products, that allow savvy investors to acquire the asset, convert it to a HMO and then refinance onto a term product, with no Early Repayment Charge. This can be done within the 6 months ownership guideline, and allows the investor to pull their initial capital out and build momentum in their property portfolio.
Some of the questions you may be asking your self before investing in HMO’s
- Do I qualify for HMO finance
- Which type of HMO will obtain a commercial valuation
- What’s the maximum Loan to Value
- Can I borrow towards the purchase and the refurb
- What Rates are available to me
- Will my Limited Company be accepted for HMO Finance
- Can I pull all my money out of the deal
If some of these questions have crossed your mind, then feel free to contact one of our experienced and qualified advisors today 02921 111280.