Retrospective sub-division of a HMO and financing/refinancing strategy

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    Retrospective sub-division of a HMO and financing/refinancing strategy

    I have 5 self-contained bedsits and 1 x 1 bedroom self-contained flat all contained within a single HMO property. There is a shared kitchen and lounge and I have a HMO license and certificate of lawful development (change of use C3 to C4). My strategy is to wait 3 more years and get retrospective planning permission so that all of the units can be registered with the land registry as separate C3 dwellings. I then hope to sell the 1 bedroom flat whilst keeping the 5 bedsits as a multi-unit building. How would I approach this with the mortgage lender? I take it they will have to be informed. Would I then get them to re-value the remaining 5 units and hope that there would be enough equity in to keep the current deal or take a new deal. Any shared experience would be much welcomed as I am about to refinance this HMO property in it's entirety and want to avoid any future pitfalls or expensive ERC's.

    #2
    The lender will want to be more than informed!
    Your mortgage lender won't allow the conversion and you'll have to pay the mortgage off before you make the changes.

    You can't change the property acting as the lender's security.
    Hopefully, if there's current funding, it was taken out on the basis that the property was going to be an HMO.
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

    Comment


      #3
      JPKeates is indeed correct, any structural changes to a property has to be approved by the lender and clearly what is being proposed will necessitate the current loan having to be repaid and once consent and implementation of the changes have been made then you would need to secure new financing on the basis of a possible multiunit Freehold Building.
      To engineer the first stage you will need to obtain short term financing to repay the current borrowings which depending on the LtV will carry an interest rate of between 0.7 & 1% per month with a standard lenders fee of circa 2%. There are of course other associated fees but for the present this is the route you would need to go down with your plans , very doable in principal but expensive in its undertaking.

      Comment


        #4
        Thank you for your reply. In order to facilitate this sub-division no structural changes or building work will be necessary. The units are currently acting as stand alone self-contained units. The retrospective certificate of lawfulness will legitimise this in 2022 at which point I would hope to sell the 1 x 1 bedroom flat. If I switch to another lender surely the same issue will arise?

        Comment


          #5
          Not requiring any structural changes doesn't really change anything.

          Your lender has a large loan secured on a property, let's call it #1 the street.
          You're planning to split that property up into 1a, 1b, 1c, 1d, 1e and 1f, and then sell 1f.

          Your lender won't be able to accommodate switching from a product secured on a single property to one secured on multiple properties, planning permission or not.
          Too many things need to happen at once, so they'll just say no.
          When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
          Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

          Comment


            #6
            If the mortgage lender has registered a charge against the freehold title for security of the loan, you will not be able to move any flats to separate leasehold title.

            Comment


              #7
              Can I make a slight correction Gordon to your last post and without wishing to sound clever;you are indeed correct regarding the possibility of the lender not allowing any flats to be extracted from the title but the possible exception is if the value of the Freehold plus the value of the remaining flats still affords sufficient equity against criteria then consent “might” consider the release. This is the situation when an investor intends to do a flat breakup .A long shot but just possible.

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