Remortgaging 6-bed HMO for existing client

What was the situation?

I had previously arranged a bridging loan for my existing client who was now at the end of their renovation. They wanted to remortgage to a traditional lender, to repay the existing bridging loan and release equity for their next purchase. Since the initial purchase, the client had converted the property into a 6-bedroom house of multiple occupancy (HMO) and each room was let on its own tenancy.

What was the issue?

My client is a portfolio landlord with all properties held in a personal name, which meant they had to pass strict lender background stress testing to prove affordability.

Furthermore, as the property was a 6-bedroom HMO with each room self-contained units fully let, most high street lenders were not willing to consider lending on it due to its adapted structure. The property was purchased below market value initially, so we needed a lender who can work off open market value. To allow the client to pull out the highest figure possible for their next purchase. Ordinarily, for HMOs of this size, lenders will work off a “bricks & mortar valuation” as opposed to the investment valuation which is based on the rental returns of the property.

What was the process?

After exhausting the options with high street lenders, I approached a few specialist lenders who focus on lending to landlords and specialise in the complexities of HMO lending.

I found a lender who was willing to accept the quirks of the property. Typically, they would have worked off the bricks & mortar valuation however, as we were able to evidence that the property was an overly adapted HMO, they were able to accept an HMO investment valuation. This was agreed via our Relationship Manager as it’s only available via selected intermediaries.

What was the solution?

I was able to secure 75% LTV based on the investment valuation, which was £50,000 higher than the standard valuation. This allowed the client to borrow almost £35,000 more than the usual limits.

I secured a 5-year competitive fixed rate at just over 5% on a full interest only basis. The client was once again delighted with the outcome following their first encounter with LDN Finance, and has since referred me to some of their friends.

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