Bridging loan to convert flats to 8-bed HMO to increase rent by 72%

Bridging loan to convert flats to 8-bed HMO to increase rent by 72%

09.05.17 | Written by: Chris Longhurst

A married couple – both in full-time employment within the financial services industry, contacted us looking to refinance their sole rental property – a block of four flats in the Midlands.

The couple had been letting the flats out for many years, but had recently obtained planning permission to convert the block into an 8-bed HMO. Once complete the conversion was set to increase the couple’s rental income by 72%. The works were expected to take just under a year to complete.

After speaking with their accountant, the couple had decided they wanted to sell the property to their SPV Ltd company before carrying out the works, as it would prove more tax efficient for them going forward.

To finance the conversion works the couple required a bridging loan. Once complete, the pair would then refinance onto an HMO buy to let mortgage.

We approached an intermediary only lender, which we knew would accept a related transaction (applicants selling to their company) and would be able to provide a competitive term for an HMO property once the works were complete.

Short term finance offered:

Property value: £193,000

Loan amount: £144,750

LTV: 75%

Rate: 0.85% pcm

Term: 12 months

Monthly payment: Interest to be rolled up for 6 months then serviced £1,446 pcm

Lender facility fee: 1.95% (£2,823)

Lender exit fee: No early redemption fee after the first month

Rental income: £2,000 pcm (value as flats), £3,433 pcm (expected after HMO conversion)

Trading or SPV Ltd Co? SPV

ConsultantChris Longhurst, 01732 471607

ANY PROPERTY USED AS SECURITY, WHICH MAY INCLUDE YOUR HOME, MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.