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Lenders have stricter requirements for multi-let properties, and auction purchases demand fast completion within 28 days.
A bridging loan is the go-to finance solution for HMO purchases at auction. These short-term loans offer fast funding while giving investors time to refurbish and refinance.
An investor wins a 4-bed HMO at auction for £250,000. The property lacks an HMO licence and requires minor refurbishments. A bridging loan of 75% LTV (£187,500) is used to complete within 28 days. After obtaining the licence and upgrading the property, the investor refinances onto an HMO mortgage at a lower interest rate.
For auction properties that are already licensed and mortgageable, an HMO Buy-to-Let mortgage may be an option. However, standard Buy-to-Let mortgages aren’t suitable for HMOs, so investors must apply for a specialist product.
Example:
A landlord buys a 6-bed licensed HMO at auction for £350,000. The property is fully compliant, and they secure a 75% LTV HMO mortgage with a specialist lender, financing £262,500.
HMO finance has stricter requirements than standard Buy-to-Let. Lenders assess:
Property Condition: Some lenders won’t finance properties without kitchens, bathrooms, or fire safety measures.
Challenge: Property needs an HMO licence but is currently unlicensed.
Solution: Use a bridging loan, apply for the licence, then refinance onto an HMO mortgage.
Challenge: Located in an Article 4 area, requiring planning approval.
Solution: Check planning requirements before bidding; ensure the property has C4 or Sui Generis use class.
Challenge: Property is unmortgageable due to poor condition.
Solution: Use bridging finance, refurbish, then refinance.
Some councils restrict the conversion of single-let properties into HMOs using Article 4 Directions. This means you must apply for planning permission before converting a house into an HMO.
✔ Look at the local council’s website for Article 4 maps.
✔ Check if the auction legal pack states C3 (single dwelling) or C4 (HMO) planning use.
✔ Speak to an HMO planning consultant before bidding.
Buying in an Article 4 area without checking could mean you can’t operate the property as an HMO!
Outcome: Monthly rental income increased by 30% vs. a standard Buy-to-Let, generating higher cash flow.
Ans: Yes, but only if the property is licensed, mortgageable, and meets lender criteria. Otherwise, use a bridging loan first.
Ans: Bridging lenders typically offer 75% LTV, meaning you need 25% deposit + fees.
Ans: No. Properties already in C4 use or with existing licences don’t need new permissions. However, Sui Generis HMOs (7+ tenants) always require planning approval.
Ans: Bridging loans can be approved in 48 hours and completed in 7-14 days.
Ans: Yes, but you must apply for a licence before renting it out.
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