A lender wanted to cap our client’s refinance at 65% loan-to-value (LTV). We pushed back - and achieved more than we’d set out to.
We’d been working with Gurpreet, Kul and Ram of JMB Property Group from the start, arranging finance to turn a residential property in Maidstone, Kent, into a 7-bedroom, all-en-suite HMO.
The refurbishment was complete, the valuation was strong, and the team wanted to release capital for their next project.
But the lender had concerns. We felt they were overlooking some important parts of the deal.
Funding the HMO conversion before planning approval
Before the refinance challenge came the initial funding.
The team’s plan was to create a 7-bedroom house in multiple occupation (HMO). At the funding stage, however, the proposed sixth and seventh bedrooms made an important difference.
The 6-bedroom scheme could proceed under permitted development, while the seventh bedroom needed planning approval. Most lenders we considered would only fund the 6-bedroom scheme before that approval was in place.
We found a lender who agreed to structure the bridging and development facility in two stages:
- Initially fund the 6-bedroom scheme under permitted development.
- Increase the facility once planning for 7 bedrooms was approved, based on the higher gross development value (GDV).
That gave the client a funding structure that could accommodate the larger scheme once planning was approved.
Gurpreet, Kul and Ram went on to deliver an outstanding refurbishment. The finished property comprised seven bedrooms, each with its own en-suite bathroom.
Why the lender wanted to restrict the refinance
With the conversion complete, the next step was to refinance and release capital for another project.
The finished property achieved a strong market valuation, but two issues prompted the refinance lender to restrict borrowing.
The gap between the market and 90-day valuations
The property’s 90-day valuation came in more than 15% below its market value.
That difference triggered a restriction in the amount the lender was prepared to advance.
The lender’s limit for first-time HMO landlords
This was the client’s first HMO refinance, and the property had seven bedrooms.
The lender’s usual limit for first-time HMO landlords was six bedrooms. Because this property exceeded that limit, they wanted to reduce lending further, to 65% LTV.
That would limit how much capital the client could release for their next project.
Challenging the 65% LTV cap
We knew this was their first HMO refinance. But they were hardly new to property.
Gurpreet, Kul and Ram had over 20 years’ experience as buy-to-let landlords, a strong management team behind them and a finished property that demonstrated what they could deliver.
Having supported the project from the start, we understood the work and experience behind it.
We put that case to the lender and challenged the decision, highlighting:
- Their established track record as landlords.
- The management team supporting the property.
- The quality of the completed refurbishment.
We secured an exception and higher leverage, allowing the client to release more capital for their next project.
One refinance helped change the lender’s policy
The impact went beyond this transaction.
Our feedback reached the lender’s CEO, and the lender changed its policy.
Following that change, first-time HMO landlords could borrow with that lender on properties of up to eight bedrooms, where previously the limit had been six.
What started as a challenge on one 7-bed HMO refinance helped open up funding options for other investors, too.
Securing extra time to complete the refinance
There was also the timing to consider.
The refinance was taking longer than expected, and the original 12-month bridging facility term was running out.
We spoke with senior contacts at the bridging lender and secured a two-week grace period, supported by evidence that the refinance was progressing.
The refinance completed within that window, helping the client avoid additional costs of overrunning the original term.
From structuring the initial conversion finance to challenging the refinance decision and securing extra time, we supported the client throughout the project.
Discuss your HMO conversion or refinance
Doing the right thing for our clients doesn’t stop at “computer says no”. And we bring that same determination to every deal.
Whether you’re planning an HMO conversion or looking to refinance a completed property, tell us what you’re working on.
Get in touch with Bridgemore Capital to discuss your project and explore how we could help fund it.
