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HMO Development Finance

At the HMO Mortgage Broker we truly understand the HMO bridging market. Here we have access to, specialist HMO bridging lenders with HMO bridging products designed specifically for HMO and multi-let properties.

HMO Development Finance Highlights

  • Loans from £25K to £25 Million
  • Average completion time 11 days
  • Up to 70% loan to value
  • Terms from 3 to 24 months
  • No upfront fees/ no exit fees
  • No credit scoring
  • No personal guarantees required

Everything you need to know about HMO development finance, including how it differs from traditional financing options, the benefits of choosing HMO development finance, and how to find the right funding solution for your project.

What is HMO Development Finance?

HMO Development Finance refers to the specialised lending options designed for the development of Houses in Multiple Occupation (HMO). These financial solutions cater to investors and developers looking to purchase, renovate, or convert properties into HMOs. These loans are tailored to cover the costs associated with HMO development, including purchase, construction, conversion, and renovation.

What is an HMO Property Development?

An HMO Property Development involves transforming a building into a House in Multiple Occupation. In an HMO, individual rooms are rented out, typically with shared facilities like kitchens and bathrooms. These developments can range from converting a single house to a large-scale redevelopment of a building into multiple occupant units.

Types of HMO Property Development

Commercial to HMO Conversion.

This involves the transformation of commercial spaces, such as offices, shops, or warehouses, into residential HMO properties. This type of development is increasingly popular, especially in urban areas where there is high demand for residential rentals. Converting a commercial property to an HMO often requires significant structural changes to meet residential building codes and obtaining the necessary planning permissions.

These projects can pose challenges related to zoning laws, building regulations, and potentially even community responses. However, the potential for higher rental yields from multiple tenants makes this a potentially lucrative venture.

Residential (C3) to HMO Conversion

This is the process of transforming a standard residential property, classified as C3, into an HMO. This is commonly seen in larger family homes, townhouses, or properties with multiple levels, where there is an opportunity to create additional bedrooms and shared facilities. When undertaking such a conversion, it is crucial to comply with local HMO licensing requirements, which can vary widely depending on the location.

These conversions are particularly ideal in areas with high demand for student housing or shared accommodations, offering a great opportunity to cater to a specific rental market.

Existing HMO Refurbishment.

This focuses on upgrading or renovating an already established HMO to either improve its standards, increase rental income, or comply with updated regulations. This could involve anything from modernizing rooms and enhancing shared facilities, to improving the building’s energy efficiency.

Compared to conversions, refurbishments typically require less extensive structural work but still need to adhere to building and HMO regulations. Refurbishing an existing HMO can be a more cost-effective way to enhance the property’s value and appeal to potential tenants.

Land-to-HMO developments.

This is about developing new HMO properties on a vacant plot of land. This approach allows for the most design flexibility, as developers have the opportunity to plan the HMO layout from the ground up. Such developments require comprehensive planning, including securing planning permissions and designing to meet HMO standards.

While developing an HMO on a new plot typically involves a higher initial investment, it can yield significant returns, particularly in areas where there is a high demand for such accommodations.

HMO Development Finance Exits Strategies

  1. HMO Remortgage: This is a popular exit strategy, where the developer takes out a new mortgage on the property after the development is complete. This new mortgage usually has a lower interest rate compared to the development finance and can spread the cost over a longer period. It is a good option if the intention is to retain and rent out the property, as it can provide long-term, stable financing.
  2. Sale of the Property: Selling the developed HMO is a straightforward exit strategy. Once the property is renovated or converted and potentially tenanted, it can be sold at a higher market value. This strategy is ideal for developers looking to make a quick return on their investment rather than holding onto the property for rental income.
  3. Refinance with a Long-term Loan: Similar to remortgaging, but in this case, the developer might opt for a different kind of long-term loan that offers better terms based on the newly increased value of the property. This could be a commercial mortgage or another form of long-term property financing.
  4. HMO Bridging Loan: A bridging loan is a short-term financing solution that can be used if the developer needs quick finance to cover the gap between the development phase and arranging long-term financing or the sale of the property. It’s usually used when immediate cash flow is needed or when a traditional mortgage cannot be obtained in time.

Highlights of HMO Development Finance

  • Rates from 6% APR
  • Up to 85% LTC
  • Loans with no minimum income requirements
  • Loans with zero product/lender fees upfront
  • Loans from £50,000 to £10 million
  • Interest-only or repayment options

HMO Development Finance Lenders

HMO development finance providers in the UK are experts in offering financial solutions to owners looking to develop or renovate their Houses in Multiple Occupation (HMO). These providers have a deep understanding of the distinct features and needs of HMO properties, which are usually larger than average residential buildings and segmented into individual rooms or units for leasing to several tenants. They present specialized development finance options for HMO owners who are focused on securing funding for property improvements, expansions, or elevating their real estate investment portfolio.


HMO Development Finance Costs & Fees

  1. Interest Payments: These are the primary costs associated with borrowing finance. Interest rates can vary widely based on the lender, the risk assessment of the project, the loan amount, and the term of the loan. Interest may be charged monthly, annually, or at the end of the loan term, and can be fixed or variable.
  2. Entry Fees: Also known as arrangement fees or facility fees, these are charged at the initiation of the loan. They cover the administrative costs of setting up the loan and can be a flat fee or a percentage of the loan amount. Sometimes, these fees can be added to the loan balance.
  3. Exit Fees: These fees are charged upon the repayment of the loan. Not all lenders charge exit fees, but when they do, it’s typically a percentage of the loan or the interest. They are designed to compensate the lender for the early termination of the loan agreement.
  4. Legal Fees: Legal fees cover the cost of legal services required during the transaction. This includes the cost of conveyancing, drafting loan agreements, and any other legal due diligence required. These fees are typically paid to solicitors or legal firms handling the transaction.
  5. Penalty Fees: These are charged in response to specific breaches of the loan agreement, such as failing to meet certain covenants or conditions set by the lender. Penalty fees are separate from late payment fees and are dependent on the terms of the loan agreement.
  6. Late/Missed Payments: These are additional charges incurred when a borrower fails to make a scheduled payment on time. Chronic late payments can lead to higher interest rates or even a call-in of the loan.
  7. Appraisal Fees: This fee covers the cost of property appraisal – a necessary step for the lender to assess the value of the property being financed or developed.
  8. Broker Fees: If a broker is used to arrange the finance, they may charge a fee for their services. This can be a flat fee or a percentage of the loan amount.
  9. Surveyor Fees: If a surveyor is required to assess the property or the work needed, their fees will also form part of the overall costs.
  10. Insurance Costs: Lenders often require insurance policies (like building insurance or title insurance) to protect their investment, leading to additional costs.
  11. Inspection Fees: During construction or renovation, lenders may require periodic inspections. The borrower often covers the costs of these inspections.
  12. Early Repayment Charges: If the borrower decides to pay off the loan early, some lenders may impose a fee to compensate for the interest they will lose.

HMO Development Finance FAQs

  1. What Type of HMO Conversions Can Be Financed? Finance can be obtained for various types of HMO conversions including converting a house into an HMO, converting commercial properties into HMOs, extending and converting properties, building purpose-built schemes, and converting pubs or offices into larger HMOs.
  2. What Happens Once the HMO Conversion is Completed? After completion of the project and the property is ready to be let, it can be refinanced to a traditional HMO mortgage. This step usually leads to significant cost savings compared to the short-term finance rates.
  3. What are the Short-Term Finance Options for HMO Developments? The two main short-term finance options are development finance and bridging loans (specifically property refurbishment finance). Both can provide funds for purchasing and converting the property, and interest is typically added to the loan.
  4. Can You Convert a Property Using an HMO Mortgage? HMO mortgages are not usually suitable for financing the conversion phase as they are designed for properties ready to be let or already functioning as HMOs. Bridging loans or development finance is more appropriate for conversions.
  5. What are the Key Features of HMO Development Finance? Key features include a maximum LTV of up to 80%, interest rates from 0.45% per month, terms of 3-36 months, and options for how interest is handled. These products are available to a diverse range of applicants and property types across the UK.
  6. How Much Can You Borrow with HMO Development Finance? Borrowing is typically up to 75% of the property’s value, and in some cases, the conversion costs can also be funded. The loan amount might be influenced by your planned exit strategy, like refinancing an HMO mortgage.
  7. What are the Costs Involved in HMO Development Finance? Interest rates typically range between 0.45-0.85% per month. Other fees include lender arrangement fees, valuation fees, and legal fees covering both the borrower’s and the lender’s legal expenses.
  8. Can Finance Be Arranged for Part-Completed HMO Projects? Yes, it’s possible to arrange finance for part-completed HMO development projects. This is a specialized area, and some funders are keen to lend in these scenarios.
  9. What is the Maximum Term for HMO Development Finance? While it can technically extend up to three years, HMO development finance is generally very short-term due to the nature of the work involved.
  10. Is HMO Development Finance Available to First-Time Developers? Yes, first-time developers can secure funding for HMO schemes, though lender-specific criteria may apply.HMO Development Finance for first-time HMO developers?

HMO Development Finance News


As a specialist HMO mortgage and bridging broker we have relationships with all major HMO lenders and also have access to products not available on the open market. This means we can help you fit the right HMO bridging product to the right HMO property and ensure you are fully compliant.

Whether you are looking to refurbish an existing HMO property, or purchase an HMO property, we will give you access to all the specialist HMO bridging products available and also our normally excellent service.

With instant decisions and a streamlined process with no application forms, the HMO mortgage broker team can cut through delays, and deliver funds exactly when and how you need them.

To enquire about the HMO bridging products we have available, call us on 0203 970 4113.

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