Finding HMO Development Finance
HMO development finance is not for all lenders as some will perceive this type of lending as higher risk. Creating an HMO will usually require fire doors, escape routes, separate meters, etc, and these may have a detrimental effect to the resale value if sold on the open market.
The nature of an HMO is the increased rental income over letting as a single house but not all lenders will consider such an income when assessing value. With HMO finance it will be important to approach lenders whom will accept the investment value as this will help improve the level of funding available.
For many specialist providers of HMO development funding the process of application will be much the same as with other facilities such as stretch or mezzanine finance.
HMO Development Finance – Qualifying Criteria
Specialist property development finance lenders for HMO development finance will want to understand a number of elements about you and your project, for example:
- The location of your development
- Nearby comparable HMO developments – are there other similar projects in the immediate area
- Your experience as a landlord and track record in developing such projects
- Whether you or a management company will be running the management
- The exit route for refinancing the HMO finance
- How much you need to borrow and the cash equity you are putting in
- Loan to value and term of loan
An important element to the specialist lender will be the acquisition of an HMO licence. Most lenders will make the acquiring of an HMO licence from the local authority a condition of the funding as well as an assessment of your ability to run an HMO.
Time Required to Complete HMO Development Finance
For many specialist providers of HMO development finance the process of application will be much the same as with other facilities such as stretch or mezzanine finance. From an initial positive assessment from a lender there will usually be a process of completing an application form, an informal/formal site visit, valuation report and legal assessment. This process will typically take 2-3 months from the loan initiation to completing although some lenders may be quicker.
In the end the process of placing HMO development finance can be very worthwhile as the potential returns can be much better than with an ordinary property let. HMO’s are very attractive to tenants seeking affordable accommodation and in some areas the demand from students may exceed available rooms. Such HMO and student rentals are often managed by a specialist management company and so can be ideal for a distant investor.
