HMO Lender Alternatives

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    HMO Lender Alternatives

    Hi all,

    A relative of mine is currently looking to remortgage his now HMO property. We have just tried with one of the big high st lenders via a broker, which is part of a major UK Estate Agent. It concluded with the valuer not providing a valuation because he had an issue with planning permissions / hmo. He did not provide a clear reason as to why he was not comfortable.

    My relative is now looking for other banks/lenders/brokers who might be able to help in this instance. My gut feel is that the likes of very strict HMO lenders like Paragon are not going to work. So would consider other specialist lenders and even things like Peer 2 Peer property lenders. Anyone have any good ideas on who would lend in a situation like this?

    Some more specifics to help:

    **Property**
    Newham, East Ham
    7 min walk from Station (District line)
    5 Beds
    1 Reception
    Fully refurbished inside - newly done rooms, bathrooms
    Spacious Loft Conversion
    End Terrace
    The property has an HMO license from newham council

    **Finance and Valuation**
    Currently £270k on mortgage
    Looking to take out additional £30k, so remortgage of £300k
    Property valuation on zoopla of around £600k but to be prudent lets say £575k.
    Target rent £3000 p/m

    **Outline of owner**
    Owns 4 properties in the local area, all moderate LTVs (50-75%)
    Runs own business (building/construction) for 20+ yrs
    Age: 65
    Owns own property, low ltv in same area
    No dependents (kids are married, live away from home)

    Many Thanks

    #2
    Hi Ishan83

    I will do my very best to advise but before we get too deep , can you perhaps clarify your concerns over "Very strict HMO lenders like Paragon" and " It concluded with the valuer not providing a valuation because he had an issue with planning permissions / hmo. "

    I appreciate that you have given information on your relative and the property but can I please ask the following:-
    1) What is the property ACTUALLY licensed for : Is it a 6 or 7 bedroom HMO or less?
    2) Are you looking for an Investment Valuation or an Open Market Valuation , the former can in many instances provide a higher valuation against which the loan is determined
    3) Is any of the accommodation self contained .

    Based on the declared rental of £3000 per month , the stress calculations theoretically make it a walk in the park so far as funding is concerned so as a broker I am confused as to what the problem is so maybe the answer lies in the information I have requested. Please note that all lenders expect a property to fully comply with HMO licenses etc and by default must be considered to be prudent in their underwriting.

    Rest assured I will make whatever suggestions are permitted once I have more information in order to gain the release of equity from the property.

    Comment


      #3
      Newham Borough have three types of licences

      ​Mandatory house in multiple occupation licence
      Selective licence
      Additional licence

      Follow the following link and they are explained
      https://www.newham.gov.uk/Pages/Serv...-licences.aspx
      CFA

      Comment


        #4
        Hi Ishan83

        Further to my posting I have thought more about the comments which you made regarding the valuer and indeed the fact that he was unable to provide a valuation because he had an issue with planning permissions / hmo. This morning I spoke with a former colleague , a chartered surveyor , who now works for one of the largest panel valuers used by lenders. He is of a mind that the surveyors "apparent" refusal or reluctance to provide a valuation was that he didn't want to get into an argument as to whether the property duly conformed with the necessary Licensing and /or planning related matters and indeed if indeed the Build works had been signed off by the Building Inspector. If the application was then officially declined by the lender please be aware that on many applications , the applicant is asked if this has been declined by another lender for which you would need to give the appropriate answer.

        Clearly the above is supposition so anything which you can provide to clarify the position would indeed be helpful if you want constructive professional advice going forward as I suspect jumping lender to lender would result in the same situation occurring and waste a considerable amount in valuation fees.

        Comment


          #5
          HI LA,

          In response to your qs:
          Paragon - I think my relative's finances will be too complex for a lender such as this.

          Re valuation - My relative's broker was given a very vague answer by the lender/ surveyor as to why they were not satisfied. He thought it somrthing to do with building permissions and the council. As such his broker is chasing for a clear written response on this matter.

          Other qs:
          Licensed for 6 bedroom hmo.
          Valuation is for a new lender carrying out a remortgage.
          You could say the loft is self contained.

          Comment


            #6
            Cfa. We have had a mandatory hmo license now since start of the year in anticipation of switching to an HMO mortgage.

            Comment


              #7
              Loanarranger. In response to tour second post. My relative kept newham council fully aware of developments with the property since it was purchased and have had inspections that raised no issues whatsoever. So it came as a surprise when the valuer came up with issues after speaking to the council.

              The appproach my relative has taken in modifying the property for an HMO is that he has tried to be "whiter than white." He is fully aware that Newham take a hard line on those landlords that rent shoddy, unsafe properties. He has not cut corners with this property...in fact he spent a lot of money and time to make sure it is compliant.

              Finally my relative is fully aware that he must declare the valuation issue to a new lender. But the problem he has right now is that he has not been told by the valuer or the council what further work or approvals he needs to successfully let out this property as an hmo. In the meantime, there is a huge property in newham (which has one of the highest waiting lists for council property) sitting there empty...feel the council needs to step up and get their sh1t together. Excuse my french.

              Thanks all for your feedback so far.

              Comment


                #8
                Hi Ishan83
                As the valuer failed to complete his instructions from the lender your relative is deserving of a partial refund of the fee he has paid so I would suggest that the broker makes representations in the strongest manner to the lender.

                You query whether Paragon would understand your Uncles financial position, to say this does a complete disservice to them a lender.I readily accept that in common with other lenders underwriters cannot understand balance sheets and accounts and can make the wrong assessment, however as a safeguard where there are complex matters involved the financial data, the Paragon underwriter refers the matter to a team of accountants who have the responsibility of analysing the data and giving either the red or green light. How do I know , well I had the great pleasure of working for Paragon for over ten years from 1997 when BtL was originally in its infancy so I consider it only right to defend their professionalism in loan assessments even though they require a great deal of supporting documentation in the process.
                Like all lenders Paragon require the accounts for the applicant covering at least two years and possibly three years, in addition and this is the telling feature copies of the Self Assessments and the corresponding SA302's which as everyone knows confirms the figures as accepted by HMRC, so gone are the days of claiming income of £x on the application but the SA302's reflect a totally different figure.

                In terms of the loft conversion, was the size and design placing it as requiring Planning Consent and possibly needing Building Certificates,?

                You mention that Newham were fully consulted and indeed their officials visited the property during the building works, was this to get sign offs at specific stages of the conversion. I am aware of the stringent tests employed by Newham and their expectations of ensuring property investors are fully compliant.

                If all that I have said confirms 100% compliant, my only suggestion is to engage a Valuer from the likes of E-Serv, Allied Surveyors or Countrywide ( each of these carry out valuations for lenders) and establish their views on suitability, with this report your broker can ask the lender if they will accept a retype .Not guaranteed but at this moment your options are indeed limited.

                I am sorry not to be able to give any further insight, it is licensed for 6 rooms, there are 5 bedrooms which I assume excludes the loft, so is there a possibility that the LC might be classed as a double room and breach the current license.?

                Comment

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