This issue comes up time and time again; just today I took two identical calls on the same issue and it’s a weekly occurrence otherwise.
When you purchase a property to convert to a HMO you MUST use the correct loan to do the conversion.
You CANNOT simply take out either a B2L mortgage, do the works then redeem it switching to a HMO mortgage OR take a HMO mortgage on the basis you intend to convert to a HMO.
B2L mortgages are exactly that Buy TO LET not buy to convert or indeed buy to sell!
The lender expects that rent is going to be coming in day one to pay the mortgage. Lenders would NOT allow you to convert or do anything other than minor works and certainly not allow you to use them as cheap bridging! Even mortgages with no redemption penalties are NOT for this purpose.
Similarly when you take out a HMO mortgage the lender and the valuer has the expectation that the property is let or ready to be let as an up and running HMO.
If you have a 4 bed 3 reception room property that can be let out as is to 6 tenants with next to no work then that would generally be ok however if you wanted to add en suites, split rooms, apply for planning etc then this is not acceptable to the lender.
The correct options for conversion to a HMO are:-
– HMO refurb product
– Bridging loan or short term loan and then refinance (with the same or different lenders)
– Refurb to term type product (usually with the same lender)
Not doing this correctly will backfire on you at some point and I’m seeing this more and more.
If you’re lucky it’ll get turned down at valuation and you’ll just waste a val fee, later than that and you’ll also face wasted legal fees, broker fees etc.
Complete on the wrong loan and things can get really messy!
Using B2L mortgages for conversions or buy to sell and redeem them early and you’ll get yourself banned by that lender and potentially find yourself on the CIFAS/Hunter fraud alert system.
Use HMO mortgages to do the conversions and similarly find yourself banned by the lender.
I have two clients right now who I’m trying to assist who used HMO or B2L mortgages (on the advice of their previous broker) to convert to HMO.
Sad thing is they both intended to convert to the correct HMO mortgages once done or believed that a ‘HMO mortgage’ means you can convert to a HMO.
Neither is the case.
They have been informed they are no longer welcome by the lender and are not allowed to do further advances or product transfers.
In one case it would appear other lenders may have been informed.
I cannot stress enough; you MUST use the correct loan/mortgage for the right purpose.
Trying to do things on the cheap will end up costing you significantly more in the long run.
Ignorance and/or bad advice will not save you!