Guide
Why HMO lenders decline before they price
Updated
HMO cases fail on appetite far more often than on price, and appetite questions are free to ask. Working through them first avoids paying for a valuation on a case that was never going to complete.
Room count moves you between products
Above a certain number of lettable rooms many lenders stop treating a property as a specialist buy to let and start treating it as commercial, which changes the product, the pricing basis and often the term.
The threshold varies by lender. Ask directly at what room count you move products, because a six-room and a seven-room scheme can be two different conversations at the same lender.
Article 4 and planning
Where an Article 4 direction applies, converting a family home to a small HMO needs planning permission that would otherwise be permitted development. That affects both value and future flexibility, and lenders differ on whether they will lend into those areas at all.
Larger HMOs can fall into a planning use class of their own in some areas. Establish the planning position before the valuation rather than discovering it in the report.
Experience
First-time HMO landlords are underwritten more cautiously, and some lenders will not consider them at all on larger schemes. That is not unreasonable: an HMO is an operating business more than a passive investment.
If it is your first, expect a narrower pool and price accordingly. It is a reason to use a broker who knows which lenders will actually look.
The order to do this in
Confirm the licensing position with the council. Establish the planning position. Ask two or three lenders the appetite questions above. Only then pay for a valuation.
Every one of those steps is free or nearly free, and each of them can end the case. Paying for a valuation first is the most common avoidable cost in HMO finance.