Refurbishment finance for HMO projects

This suits investors and landlords who want to improve an HMO rather than buy one ready to let. The property might be tired, below standard, or simply need updating to command better room rents and pass a licensing inspection.

Common situations we place include:

• Buying a run-down shared house that needs a full refresh before it can be let well.
• Upgrading an existing HMO to meet current licensing and room-size standards.
• Adding an extra bathroom, a kitchen upgrade or better fire safety to lift room rates.
• Refurbishing at auction speed on a property a mainstream lender will not fund in its current state.

The borrower is usually a company or investment landlord running the project as a business, so this is unregulated commercial lending outside the FCA's regulated-mortgage perimeter. Where a case would instead be a regulated mortgage contract, we refer it to an appropriately authorised firm. If the project involves changing the planning use class rather than just improving the property, our HMO conversion bridging page is the better fit.

Lenders split refurbishment into two broad categories, and which one your project falls into shapes the finance.

Light refurbishment usually means cosmetic and non-structural work: redecoration, new kitchens and bathrooms, flooring, rewiring, and improvements that do not need building regulations sign-off or planning permission. These jobs are quicker, lower risk, and tend to attract keener terms and faster drawdowns.

Heavy refurbishment covers structural work, changes to the layout, extensions, or anything needing building regulations or planning consent. Adding rooms, moving walls or reconfiguring a property to increase the room count usually sits here. Heavy jobs take longer, carry more risk, and are underwritten more carefully, often with a monitoring surveyor overseeing the works.

Neither is a problem in itself; we place both regularly. What matters is describing the work accurately so the lender prices the real project. Overstating a heavy refurb as light, or the reverse, only slows things down. We help you frame the scope, the budget and the programme so the case is priced fairly first time.

A refurb-to-let deal has a clear shape: buy, improve, let, refinance. The bridging finance covers the first three stages, and a term HMO mortgage takes over at the end.

The purchase element is advanced against the property's current value on day one, before any work. The refurbishment budget is then made available to fund the works. Once the job is complete, the property is licensed where required and the rooms are let, it is revalued, and a term mortgage on the higher value redeems the bridge.

The whole exercise turns on the uplift in value the refurbishment creates. A well-judged refurb can lift both the capital value and the achievable room rents, so the finished property both sells or refinances higher and stresses more comfortably on a term lender's ICR. We look at the expected end value and rent roll at the outset, so we can size the bridge sensibly and confirm the term exit will land. That way the two facilities join up cleanly and you are not left holding a bridge with nowhere to go.

On a refurbishment facility the works budget is rarely handed over in one lump. Instead it is released through staged drawdowns, with funds advanced as the project reaches agreed points.

The mechanics are straightforward. You agree a schedule of works and a budget with the lender. As each stage completes, a monitoring visit or updated valuation confirms the work is done and to standard, and the next tranche is released. On heavier schemes a monitoring surveyor may sign off each stage; on lighter ones the checks are lighter too.

Staged drawdowns protect both sides. The lender only advances against work actually completed, and you only pay interest on money actually drawn, which keeps the cost down compared with taking the whole budget up front. Interest is often rolled up rather than serviced monthly, so cash stays free while the property is not yet earning. The practical lesson is to keep the schedule realistic and the works evidenced, because clean stage sign-offs keep the money flowing and the project on programme. We help you set the schedule up so drawdowns do not stall.

Refurbishment bridging is priced monthly, and the rate reflects the loan to value, whether the work is light or heavy, and the strength of the exit. Treat every figure here as an indicative band, subject to status and valuation, not a quote or an offer.

As a broad guide:

• HMO bridging runs indicatively around 0.75% to 1.1% per month, with lighter, lower-leverage refurbishments at the keener end and heavier structural jobs higher up.
• Facilities are arranged over short terms long enough to finish the work, license and let the property, then refinance.
• Interest is commonly rolled up and settled on redemption, so the amount to repay grows over the term.

The term HMO mortgage you exit onto is priced separately and far lower, indicatively from around 5.5% to 6.5% depending on the fix and LTV, which is why the plan is always to move off the bridge promptly once the rooms are let. We model the rolled-up bridging cost against the exit so you can see the full picture before you start. These are indicative bands, subject to status and valuation, not a guaranteed quote.

The more you can tell us up front, the faster and more accurately we can place a refurbishment case and line up the term exit.

It helps to send:

• The property address, the purchase price and its current condition.
• A schedule of works and budget, and whether the job is light or heavy.
• Whether the property is or will be licensed, and the council area.
• The expected end value and rent roll once the work is done and let.
• Your intended exit and the borrowing entity.

We will come back with an indicative view on the bridge and the term exit within the bands on this page, then approach specialist lenders on your behalf. We arrange the finance and place it with lenders; we do not lend ourselves. Remember these are indicative bands, subject to status and valuation, not a guaranteed quote. Nothing here is financial, legal, planning or tax advice.