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Financing conversion of an HMO to serviced accommodation

q&a Mar 10, 2019

THE QUESTION

I’m seriously considering converting my HMO into serviced accommodation (SA).  How easy would it be to refinance it as SA?

THE ANSWER

Buy-to-let (BTL) lenders invariably require a minimum letting term of six months and a maximum of 12 months in the terms and conditions.  That makes short-term lets a no-go area for the mainstream lenders.

Commercial lenders see serviced accommodation as in the same category as B&Bs and guest houses as it uses the same business model.  These lenders fall into two group:

  1. Those that are OK with both SA and B&B and are happy to lend
  2. Those that don’t like SA because the whole building isn’t used for the same purpose i.e. one flat in a block.

Due to the lack of a certain income lenders are nervous about the security of their loan and want some assurance that the income from the property will cover the mortgage payments comfortably.

If you remortgage an HMO lending is straightforward as you have the ASTs and a track record to show the lender.  If they can see a regular £2-3K a month coming in each month, they will base their loan offer on that.

If you have no track record you have no reassurance to offer.  That means that even commercial lenders will hesitate to lend on a brand new project.  They would want to see at least 12 months occupancy records and income to see how your property performs, ironing out seasonal variations.

To refinance an HMO as serviced accommodation you’ll need evidence, either of this property’s performance or another property you own that has been run as SA for at least 12 months.

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