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BTL mortgages for HMOs


What method of financing do you use to purchase a property to convert to an HMO, before re-financing to an HMO product?  I'm being told by a broker it won't be possible to get a mortgage, (not due to the fact the house is not mortgageable, but due to the fact I’ll be carrying out ‘extensive works’) and that I have to use bridging.

Are there any mortgage lenders who will allow you to do works on a property?  What are the parameters for this?

Or is bridging my only option?


Your broker is correct in so far as no mortgage lender would allow you to do the level of work required to convert a property to an HMO, whilst you had a mortgage with them.

It’s not so much that lenders don’t allow you to do work to improve the property, they do, but converting to an HMO and then filling it with multiple tenants breaches the T&Cs for that type of mortgage, which usually allows only one AST for the property.  The result is that they won’t allow you to do the work that leads to you breach their T&Cs.

The transparent and honest way to purchase in this instance is:

  1. a) With cash, yours or someone else's
  2. b) Bridging finance

Of course, there is another way that some choose to fund it.  Get a BTL mortgage and brazenly breach the T&Cs and do the HMO conversion work anyway.  This may come back to bite you in the ass as the first thing the council does when they receive an application for an HMO licence is inform the mortgage lender.  This results in a letter from the lender to a) turn the property back into a single let or b) pay back the mortgage.

Even if you think you might get away with that, you are likely to burn your bridges with that lender and you also risk them putting you on the secret list of fraudulent borrowers that lenders share between them.

Making yourself totally unmortgageable may not turn out to be the smartest move in your property career!

There is a silver lining to having to use bridging though - it allows you to operate as a cash buyer effectively and you would negotiate differently to buying with a mortgage. T he people I train to use bridging intelligently on my Ninja Investor Programme workshops know that you can often reduce the purchase price of a property by an amount equivalent or greater than the cost of the bridging.  Where investors go wrong is negotiating like a mortgage buyer, and then trying to tack bridging on the back end.

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