BTL to HMO

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    BTL to HMO

    Senior member advised me to repost in correct forum,I recently purchased a BTL using a standard BTL product, during the very light refurb I've decided to convert to my first HMO. After the 6 month rule has elapsed I want to switch to a HMO product for 8 units. I was going to use the Leeds BS but they are on pause. Is refinancing to HMO possible bearing in mind I will have no tenants at point of refinance? Also would be interesting in product recommendations, thanks.

    #2
    First have you applied for an HMO? Once an app is made the Council will automatically notify your lender and they in turn will start asking questions because what was originally applied for turns out to be something entirely different: given the short period of time of ownership expect a frosty attitude.
    If this is your first BTL which is now a large HMO , you will have great difficulty in getting a lender to accept an application as you are a novice investor and importantly are not viewed as experienced to manage such a large property.
    sorry but I have reservations on your sudden revelation to make the house into such a large HMO.

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      #3
      not applied for hmo license, not a novice investor, new to hmo. Revelation is due to proximity to local hospital and current situation. Correct not experienced in managing large hmo which is why I’m engaging a professional management company. Why would my current lender be frosty if mortgage terms are not breached and they get all their money back after 6 months once the hmo product is in place but before tenants are in place ? No intent to do anything underhand. Did you have any comment pertaining to the actual questions?

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        #4
        Thanks for qualifying that you are not a novice landlord therefore I can assure you that there are only a minority of lenders who will accept HMO’s of this size. Whilst an application can be submitted to a lender whose criteria accommodates such property , no monies will be released until the HMO license is granted.
        Whilst the Leeds are presently out of the HMO market because of the current situation which todate has precluded their valuers from inspecting the property I suspect that they will renter this sector once the general backlog of physical valuation instructions have been cleared; in the interim and assuming you haven’t already done so please check that the potential rental income now meets what is generally considered to be a tough 165% at 5.75% for purchases or capital Remortgage or 5% for like for like Remortgage . The one element of this lenders criteria is their above average reversionary rate so unless there is a loyalty switch rate in place after the expiry of the product being taken then you will be obliged to seek another lender.
        Glad to get the confusion out of the way but upfront facts relating to present experience and indication of portfolio would enable a more considered response based on facts rather than assumptions on what is stated.

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          #5
          Thanks loanarranger, The 165% at 5.75 is not an issue. Loan is 150k, potential income gross is 49k/annum. Could you tell me, do most HMO lenders stress test after deducting LL management fee CT and utilities? Deal works either way, just interested to know. Also for readers, here is my new plan after taking notes from this site. Finish refurb to highest end standard in area for 6 rooms. 2 rooms stay locked. Let 4 rooms to 4 people, nhs only if possible. Refurb basement with garden access while money flows in. Then apply for hmo license and new hmo funding. My LA allows 4 before license and my current btl lender allows 4 professionals to share, then let the remaining 4 rooms. CheckIng if buildings insurance needs amendments as we move through the phases.

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            #6
            You need to get a fire risk assessment done.
            Residential properties and HMOs have very different fire escape and general fire safety requirements.
            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).

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              #7
              Thanks JP already going beyond regs, Sounders, detectors, fp200, fire doors, multiple escape points, protected evac route, double plasterboard etc.

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                #8
                Lenders generally base the rental stress calculations against the validated gross rental achievable ( Not the rent as shown on the AST(s), where the rent being received is higher then whilst it won’t make a difference to the size of the loan it simply makes so far as the Investor is concerned a more profitable investment. Important to note that the portfolio of properties are assessed by the lender by way of the AUtomated Valuation Methodology.

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