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If you’re looking to purchase a property at auction – perhaps to refurbish, or to acquire the land to build upon – then you may need finance to complete the transaction.
75%
No ERC
3.90%
Daily
25 Years
£250k
£25M
OMV
The property market in the UK is an extremely healthy position, with the private rental market booming. More people than ever are entering into this market and looking for good quality rental accommodation.
That being said, it’s not just a surge in rental demand that’s driving the property boom, but also a distinct shortage of supply that’s pushing up demand and prices with it, which in turn is driving up property yields. Yields, in simple terms, is the measurement used to show how much rent you’re able to command, per year, as a percentage of the value of the property.
All of these factors have created a fertile ground for landlords and property investors, and has meant that there’s now much more demand for specialist investor lending and mortgages as a result. With a desperate need for property stock comes a lot more demand for property that can be converted as well as land.
As a result of all of this, HMO properties have become much more popular in recent times, especially in city and urban centres. HMO mortgage, and large HMO mortgage applications have exploded along with these trends, showing that many more property investors and landlords are now looking at this asset class as a great way to earn income.
Because we’ve seen a big increase in enquiries about finance such as a large HMO mortgage, we’ve put together a short guide.
A normal HMO mortgage is where you borrow money over the long term to fund the purchase of a property that will have multiple occupants. A property is considered a House in Multiple Occupation (HMO) if at least 3 tenants live there, forming more than 1 household.
A large HMO mortgage would cover a larger HMO property which would be considered, under law, as a property with 5 tenants or more forming more than 1 household.
For most HMO mortgage providers they have a lending cap of between £500,000 and £1 million, so that would restrict larger HMO landlords from applying, however, there are specialist lenders on our panel who are more than willing to consider larger HMO mortgages for our clients.
So, for the purposes of this definition, consider a larger HMO mortgage as one that is for a property for 5 or more tenants with a value of £1 million and above.
A large HMO, as opposed to small or regular HMO, would be considered as such if there are 5 or more tenants living within the same property forming one household.
A small, or regular HMO is considered as such when 3 tenants form one household.
Hank Zarihs Associates are specialist and highly-experienced intermediaries in the development finance and investment funding industry. We work with a tried and tested panel of specialist funders with an excellent track record in the market, who can offer high leverage and gearing. As an HMO landlord, or larger property investor, you need a broker and a provider than actually understands the market and what it entails. Whilst it’s true that the profits and returns can be very good, it’s also true that it’s added stress and much harder work to maintain and finance such a property. We’ve been in this industry for years and our brokers and lenders understand what it is you need and what’s required to succeed in this asset class. Over the years we’ve carefully cultivated close relationships with some of the best and most experienced lenders on the market. We’re able to talk you all the way through the process, and because we’ve been working with our panel for so long we’re able to get exclusive rates and preferred partnerships which means we can get our clients market beating rates they won’t find anywhere else.
Ready to apply for HMO Mortgage? We work with a tried and trusted panel of lenders who are actively lending. The deals that we can recommend to our clients are updated daily, so you have complete peace of mind that you are receiving details of the best possible HMO Mortgage products on the market in real-time.
To give you a better idea of the costs may be, and what an HMO mortgage may entail, we’ve put together a calculator that you’re able to change around with the interest, amount, term and Loan To Value (LTV). This is intended to be a rough guide and provides typical rates and terms, so if you’re looking for something more specific it’s a good idea to get in touch with one of our brokers directly.
Hank Zarihs Associates streamlines your financing journey with tailored solutions, fast approvals, and expert guidance, connecting you to trusted lenders for project success
If you’re looking to buy or get a mortgage for a large HMO, then it’s important that you work with lenders and providers who understand the market and what it takes to make this successful.
As opposed to a traditional residential mortgage, our lenders don’t just look at your personal credit rating. They like to take a look at the property itself, your experience, and the viability of the project.
Our panel of lenders are all hugely experienced in this field and with HMO mortgages in general, and we have access to lenders that you wouldn’t normally be able to deal with through traditional methods. We work with, for example, pension funds, foreign investors and foreign banks who have an appetite for this type of exposure in the UK with HMO mortgages.
All of our HMO mortgage lenders understand the UK market and judge each application on its own merit.
Yes, you can, although it may mean a slightly longer application process. Of course, each case will be different and will have different requirements, however, your personal credit rating isn’t the be all and end all of any HMO mortgage application.
Speak to one of our brokers to run through what type of bad credit you’ve got, whether that be defaults or CCJ’s, and they can talk you through your options. It may be the case that you’re asked for a slightly higher deposit, or perhaps to put some security forward, or it may even be that the property is a fantastic investment, so it won’t matter.
The truth is, we won’t know until we speak to you and put you forward to our lenders.
Things to consider
First and foremost, it should be said that a large HMO is more work than other types of property. The maintenance and management can be stressful and expensive at times, although the financial reward is what drives many towards these types of assets.
Secondly, these types of bigger HMO mortgages don’t take any longer than normal applications, as long as the legal paperwork and valuation aren’t delayed, of course.
Finally, experience is quite key when lenders are considering your application, so if you’re completely new to the market then it may well be worth considering whether it may be easier starting with a smaller project first.
Yes, you can. Expats and overseas applicants can apply for these HMO mortgages, and anybody looking to invest in these types of properties.
The application process may be a little lengthier in that you may be asked to prove your income, resident status, etc, however that doesn’t exclude you as a non-resident.
We’ve got the experience, the team, and the lending panel to make your project a success. The application process is really simple, and our friendly and helpful brokers are there for you every step of the way. If you’re looking for some more information get in touch today.
You may have heard about bridging loans in the context of property investment or moving house, but what exactly are they? Basically, bridging finance is a type of short-term loan that allows a buyer to purchase a property before their existing home or investment property is sold. As the name suggests, it ‘bridges’ the funding gap in the lag between purchase and sale – offering rapid access to the necessary purchase funds for a brief period of time.
Borrowers can access from £5,000 to £250 million, depending on applicant status, the value of the property and other lender criteria. Higher lending amounts are typically reserved for borrowers who can put up several properties as security. Quotes are provided on a Loan to Value (LTV) of 65%-80% in most situations.
The bridging finance market has grown rapidly, with a number of small and focused lenders now on the market, catering for specialist property finance needs. The market has changed because large high-street lenders have become less willing (and sometimes less able) to lend ever since the financial crisis of 2008.
As to whether a bridging loan for property development, auction purchase or private home buying is a good idea, it depends on a variety of factors. Bridging loan requirements vary by lender, but each will have certain common features that need to be considered.
The most notable feature of this type of finance is that the interest rate is likely to be high. At the same time, there are typically high administration fees applied to the loan. Because of this, it is essential to proceed very carefully and with a full view of the facts. Borrowers have been burned by this type of loan in the past, in instances where transactions have fallen through, or where lenders have turned out to be unscrupulous and untrustworthy.
Benefits of instant bridging loans
1. Rapid access to money
2. Ability to borrow large sums – often up to £250 million depending on applicant status
3. Options for flexible borrowing.
Possible downsides of bridging loans:
1. Failure to understand the unique features of these loans can result in financial risk
2. Bridging finance is secured against your property; meaning it can be sold if you can’t meet the repayment terms
3. A costly option with fees and higher interest
Bridging finance interest rates will vary by lender. However, interest costs of 1.5% a month are not unusual, which can equate to an annual percentage rate of 18%.
Bridging loans may have fixed or variable interest rate features. Fixed interest rates are ideal for customers who want stability, as they offer the same amount of interest for the duration of the term. The rate is pre-agreed, but there may be a premium for this security.
The other choice is to have a variable rate bridging loan which can change with the base rate. However, you can save money if the base rate decreases. Borrowers who are less concerned about security sometimes prefer the variable rate option if they believe that the financial markets will travel in their favour. Knowledge and market insight is required here, along with a thorough understanding of personal risk tolerance. If interest rates appear to be rising, most customers will choose the fixed interest rate to lock it in and avoid further increases in the event of a base rate rise.
Bridging loan periods tend to be for several months and there are usually different options for paying the interest portion.
Monthly repayments
The customer repays the interest every month as a separate payment, rather than adding it to the outstanding balance
Rolled-up bridging finance deals
The compound interest is calculated monthly but added to the outstanding loan balance and paid together when repayment is due.
Retained interest
The monthly interest payment due is covered up to a predefined date so that the full sum is only repaid when monies are due.
As well as interest payments, there will be an arrangement fee for the set-up of the bridging loan, which is usually around 1-2%. A repayment fee for exit paperwork may also apply, along with valuation fees for the cost of the surveyor.
Remember, this type of finance is designed to be short-term. As soon as it extends beyond the agreed interim or bridging period, penalties can rapidly stack up. Typically, bridging finance is available for 1 – 18 months.
Yes, there are two broad types: closed bridging finance and open bridging finance.
With closed bridging finance you will tell the lender how you will repay the loan – with what funds and when. These loans usually complete within a few months and the clear exit plan is required as a lending condition.
Open bridge finance won’t usually need this type of exit plan, and it is typically the loan of choice when funds are needed urgently to complete a property transaction. No detailed plan is needed to explain how the debt will be settled, and the finance tends to be offered for up to a year. Of course, it’s important to note that interest will keep being applied throughout this period.
There are also first charge bridging loans and second charge bridging loans.
If you have a loan against a property which is already mortgaged, you’d take out a second charge loan. An example of this would be if you were planning to finance a property extension to improve the property. The categorisation tells the lenders who will have legal priority for repayment if the loan was unable to be paid off at the term-end.
First charge loans apply if the new loan is the first secured on the property.
Bridging loan requirements will depend on the lender. Often, lenders will require that:
Customers must also take out their property mortgage with them too, providing the bridge finance as an interim measure before the standard mortgage comes into play.
Property is put forward as security against the loan. Some lenders expect applicants to have more than one property in order to be eligible for their bridging finance products, but this will depend on the lender and the size of the loan.
Applicants show proof of income – although, interestingly, as loan interest isn’t repaid monthly, some lenders do not request this.
The applicant shows evidence of their property investment track record if they are planning to develop their purchased property.
The applicant can show a business plan if they are using the bridging loan for commercial purposes.
Development loans are another type of short-term property development loan. They are repaid in stages and calculated on the gross value of the development. Personal loans are another option, as are remortgages when timescales are more flexible and a long-term loan is desirable.
Use a bridge loan calculator
Ask for your lender to provide a tailored bridge finance example or illustration around your particular borrowing needs.
Think carefully about the type of bridging loan that you need – whether open bridge finance or closed bridge finance.
Know whether the loan is a first or second charge type.
Clarify whether the interest rate is fixed or variable.
Review products from several lenders.
Be clear on your security.
Read the small print!
Bridging loans are offered by banks, building societies, specialist lenders and brokers. They aren’t widely advertised and usually require a direct application by the customer to find out the product features and offers.
Once you have made an application, a decision will usually be made within 24 hours. The funds then will take around two weeks to be issued, including time for checks to be carried out, the valuation and the actual transfer.
Hank Zarihs are highly experienced and specialist financial intermediaries operating in the property development market. We work with a tried and tested panel of over 60 trusted lenders and can provide excellent bridging finance with attractive features. Contact us to find out more.
Hank Zarihs Associates streamlines your financing journey with tailored solutions, fast approvals, and expert guidance, connecting you to trusted lenders for project success
A Privately Owned Independent Boutique Financier Whose Main Area of Focus is the UK Real Estate Market. Specialists in Raising Debt and Equity for Professional Sophisticated Investors and Developers.
Our core focus is offering fast solutions, financial products that deliver results, and the highest of service levels. If you would like to find out more please contact us to discuss your funding requirements.
Address: 2nd floor North Park House, The Precinct, High Road, Broxbourne, EN10 7HY, United Kingdom
Mobile: +44 (0) 20 3889 4403
Email: contact@hankzarihs.com
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