November 25, 2024

HMO Conversions: The Remedy to Rising Rates?

Our research shows that 66% of landlords reduced the size of their portfolios in 2024.

A sharp increase in rates and running costs and a swathe of unfavorable legislative change has made it a challenging market for landlords, and returns have been significantly affected.

Whilst the mainstream Buy-To-Let market is facing turbulence, there is huge opportunity in the specialist space as landlords go in search for better returns.

For us at Octane, this will be our biggest year on record for refurbishment completions, and HMO conversions are the most common scenario we fund.

Our research highlights that the average HMO yield is 8.1%, compared to the average yield of 4.4% for a single-tenancy property.

When is approval from the local authority needed?
  • C3 dwellings can be converted into C4 HMOs (<7 bedrooms) under permitted development, with no need for any approval from the local authority, providing crucially that the area is not subject to an Article 4 Direction.

  • Properties in areas subject to Article 4 will require a full planning application, irrespective of room numbers.
  • Larger HMOs of 7 or more bedrooms require a Sui Generis planning application to be granted before the works can commence.
Does my client need experience?

No: we can lend to first-time developers and first-time HMO investors.

That said, investors should seek advice from a team of professionals to support them: an architect/planning consultant to advise on whether planning is needed, their solicitor to provide legal advice, a reputable contractor to complete the refurbishment works (ideally on a fixed-price contract) and a managing agent to help let the property post-conversion.

And, of course, their broker: to help them source the right funding for their conversion project.

Octane lend up to 75% LTV NET towards a purchase + 100% of any conversion costs.

About Octane Capital

Octane Capital are a specialist lender offering short-term finance to property investors. Since launching the business in 2017, we have lent over £1.75 billion.

We specialise in refurbishment finance; helping investors to increase a property’s value or improve its yield.

Our rates start at 0.33% per month + BBR. For refurbishment projects we lend up to 75% LTV NET day one + 100% of refurbishment costs.

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About Fiducia Commercial Network

Fiducia Commercial Network is a commercial finance ‘Appointed Representative’ network created to allow independent firms to provide commercial property finance and trading business finance options to their existing client base and network.

Joining the network provides opportunities for professional brokers to offer a full range of commercial finance solutions by acting as an Appointed Representative (AR) with the full support of the Fiducia Commercial Network team.

The Fiducia Commercial Network membership includes FCA authorisation and reporting, PI insurance, and NACFB membership, plus business, compliance, finance, system, and admin support from a company with over 20 years’ experience in commercial finance.

If you’d like to discuss joining Fiducia Commercial Network or you’d like to apply to become an Appointed Representative…

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To discuss Fiducia Commercial Network or to apply to become an Appointed Representative email the team via by clicking this link.

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