How To Get A Bridging Loan For An HMO

03-April-2024 15:05
in Bridging
by Admin
How to Get a Bridging Loan for an HMO

HMO bridging finance - As HMO grow in popularity, we explain how bridging loans can be used to convert a property to an HMO.

Landlords are increasingly focusing on Houses of Multiple Occupation (HMO) to increase their ROI.

One of the advantages of having an HMO over a regular buy to let is that you can charge rent by the room instead of the whole property. This can help boost your rental yield, allowing you to get more out of the property.

For example, a property with three bedrooms and three reception rooms could be rented out to a family, but that same property could be rented out to five tenants and provide a larger rental income.

If you're looking to buy a property and increase its potential, you could convert it into an HMO. But in most cases, it's not an option to pay cash, so it's likely you'll need finance.

Written bySam O'Neill & Sam Hodgson

In this guide:

When is a Property Classed as an HMO?

Is it Hard to Get a Mortgage for an HMO?

BTL Market Update

What Do The Experts Say?

Are Landlords Using Bridging Loans for HMOs?

Bridging Loan Calculator

Bridging Loan Application Process

How to Get a Bridging Loan



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When is a Property Classed as an HMO?

A property is classed as an HMO when there are three or more tenants who are not part of the same household, which share communal areas such as a bathroom and a kitchen. An example of an HMO is a property shared by young professionals or a student house.

Types of HMO

HMOs fall into two different categories: licensed and non-licensed HMOs. A property with fewer than five tenants sharing a kitchen and/or bathroom won't need a licence.

Licensed HMOs

If you have more than five tenants living in your property then your property will be deemed a ‘large HMO' and you will need a licence. You can obtain a licence from the property’s local council and you'll need to pay an application fee to do so. 

Whether you intend to have a licensed or non-licensed HMO, you will need additional finance to cover the purchase costs and to fund any necessary developments.

Traditional lenders

The housing market is extremely competitive and the process of applying for a mortgage is stringent. Having the right finance available might be the difference between a successful HMO project and a missed opportunity. A traditional mortgage can take time to arrange, so while it can typically work out as the most affordable option if you're working to a deadline (e.g. if you find a suitable property at auction) then applying for a mortgage may not be the most suitable route. 

This is where bridging finance can be convenient because it allows you to act like a cash buyer and take advantage of time-sensitive opportunities. Bridging loans are flexible, and can be repaid by the sale of an asset (such as a business or another property) or it is possible to refinance to a mortgage.

If you're not sure what method of financing is suitable for your HMO, it's recommended to seek advice from an experienced broker. At Clifton Private Finance, we have a team of experts who can give you a full overview of your options and guide you through the process of securing a property loan.

Is it Hard to Get a Mortgage for an HMO?

If you have multiple buy to let properties, securing a mortgage for your HMO could pose unique challenges. This is because landlords can no longer spread equity across their portfolios. Traditional lenders will not grant buy to let mortgages to landlords with one or more properties that are not profitable.

During the application process, traditional lenders will now review a landlord’s entire property portfolio to ensure all their properties are profitable.

Securing Funding Time

It is not uncommon for applications to traditional lenders to take up to several weeks or even months to process. If you need finance quickly to complete a purchase then applying to a traditional lender may not be the best route to access the funding you need.

With the recent changes to the buy to let mortgage regulations and the length of time you may have to wait to secure the mortgage you need, you might want to consider alternative options for finance.

March 2024 Buy to Let Market Update

  • Before 2023, the stress rate was around 4%, and landlords could borrow significantly more. For instance, about a year ago, a basic rate taxpayer could borrow around £309k for a property based on the average UK rent of circa £1,300.

  • At 75% Loan to Value, that could buy roughly a £400k property, which you would expect to comfortably provide £1,300 in rental income. So it made sense, and the maths added up.

  • The BTL market faced challenges in 2023, with landlords finding it difficult to borrow due to stringent stress testing measures. However, stress testing has eased up in recent months, and there is growing confidence in the buy-to-let market in 2024.

Did You Know? 

Generally, 5-year fixes are typically the cheapest deals available for buy-to-let mortgages. The Prudential Regulation Authority allows mortgage providers to apply a lower stress test if the mortgage term is over five years.

Because of this, you may find a rare 2-year fix or tracker mortgage that seems more suitable, but in most cases, a five-year fix will work out as a more affordable option, purely because of the more lenient stress testing criteria applicable. 

What Do the Experts Say?

Alex Morris, Private Client Adviser

What is Stress Testing in BTL Mortgages?

Stress testing is a method used by lenders to assess a landlord’s ability to cover mortgage payments under adverse conditions, ensuring that rental income is sufficient even in less favourable scenarios.

The specific rates mentioned (from 4% to 10.5%) refer to the hypothetical adverse conditions under which the stress tests are conducted. Higher stress rates make it harder to pass the test, thus reducing borrowing capacity.

Sam O'Neill

Sam O'Neill

Head of Bridging

Let us do all the hard work of finding the right bridging lender for your circumstances. 

We secure bridging finance for applications of all types, and we negotiate competitive lending to meet your needs and timescale.

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Are Landlords Using Bridging Loans for HMOs?

Landlords are using bridging finance to convert properties to use them as HMO purposes.

So, what is a bridging loan?

A bridging loan is a type of finance that is solely designed for short-term usage and can ‘bridge’ the gap until long-term finance is in place. They can provide a large amount of funding in a short amount of time. The strength of a bridging loan is its speed - a bridging loan can be secured within 7 working days, depending on your circumstances.

If you need finance to fund the purchase or development of your HMO property, then bridging finance may be able to provide the funds you need quickly.

Roll-up interest

Bridging loans often come with the option to ‘roll up’ the interest to pay at the end of the term of finance. This can allow you to use your loan for the purchase and development of your HMO property, without having to service monthly interest repayments.

Exit strategy

In order to secure a bridging loan you will need a clear exit strategy. An exit strategy is the method you intend to use to repay the loan at the end of the term of finance. An example of an exit plan could be where you have purchased your property or completed your HMO conversion and you secure long-term finance such as a mortgage to repay the bridge.   

No early repayment charges

Unlike other types of finance, such as a mortgage from a traditional lender, bridging loans generally do not come with early repayment penalties.  This may be an attractive feature of a bridging loan, as you may get long-term finance earlier than expected and repay the bridge before the end of the term of finance.

Loan to value

Typically, bridging loan lenders are prepared to provide up to 75% loan to value (LTV). If you have a larger HMO project and require a higher LTV, depending on the lender, you may be able to use other assets as security and get up to 80% LTV.

Watch our video below - Bridging Loans Explained: Costs, Timescales, Examples, & How To Get One:

Bridging Loan Calculator

Use our bridging finance calculator below to get an indicative quote of what a bridging loan might cost you.

How to Get a Bridging Loan for an HMO

Recent bridging loan rates we've secured for clients:


Buying Before Selling?

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0.55% pm


Releasing Funds From Your Home

Short-Term Lease Finance

Auction Purchase

As at 21st May 2024

Development & Refurb

Fast Finance

Rates from:

0.55% pm

Light & Heavy Refurb

Finance For Unmortgageable Properties

Land Purchase with planning

As at 21st May 2024


Large Bridging Loans

Rates from:

0.55% pm

Up to 80% LTV

Minimum Loan £500k

Minimum net income £100k

As at 21st May 2024

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Bridging Loan Application Process

Although traditional lenders’ criteria have made it tougher to access buy to let mortgages, it is still possible to access the finance required for an HMO. Fortunately, some lenders have a more straightforward application process.

Unlike traditional lenders, who require a high rental coverage ratio and implement a strict income test, most bridging loan lenders only need a clear exit plan in place to approve an application. Not only is the application process for a bridging loan often quick, but typically the finance is received faster than other types of finance. 

The speed and simplicity of a bridging loan application make bridging finance a viable option when time is of the essence.

How to Get a Bridging Loan

Bridging finance is often not available to the general public. This is because typically bridging loan deals are not often found with high-street lenders and are rarely on comparison websites.

Therefore, if you need a bridging loan for your HMO project then it is advisable to contact a professional broker.

Clifton Private Finance specialises in arranging bespoke financial solutions to help clients source the finance they need. We have a wealth of experience in property finance and understand the importance of readily available finance.

We have strong professional relationships with private banks, specialist lenders, family offices and wealth managers.

We can utilise our network of lenders to identify the best deals for you and negotiate favourably to ensure you can progress with your HMO project.

To investigate how to get a bridging loan to suit your circumstances, call us on 0117 959 5094 or book a free consultation below.

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Do you need a valuation for a bridging loan?

Yes, a valuation is typically required for a bridging loan in the UK.  

Since bridging loans are often secured against a property or other valuable assets, lenders will want to assess the market value of the property being used as security. This helps the lender determine how much deposit they want you to provide based on the value and condition of the property. 

How much can you borrow with bridging finance?

You can borrow up to £25m with bridging finance, but it’s typically capped at about 80% of the value of the property you’re using as security. 

It's important to note that different lenders have varying policies and criteria regarding the maximum loan amounts they offer for bridging finance. Some lenders have a maximum limit of over £1 million, while others may specialize in smaller loan amounts. 

Additionally, the terms and conditions of the loan, including interest rates and fees, should also be taken into consideration when determining the overall affordability of the bridging loan. 

Do you need a deposit for a bridging loan?

Yes, you typically need a 20-40% deposit for a bridging loan. 

It can be possible to get a bridging loan without a deposit (a 100% bridging loan), but you’ll need other assets in the background to secure the loan against, and more stringent criteria and higher costs could apply. 

Can I get 100% bridging finance?

Yes, it is possible to get a 100% bridging loan (also known as a 100% LTV bridging loan), but it is rare. This means that you won’t need to put down a deposit and can borrow the full value of your property.  

However, the criteria for these loans can be hard to meet, and you’ll need to provide additional assets as security for your loan. 

Interest rates and fees can also be higher to compensate. 

Does a bridging loan make you a cash buyer?

While using bridging finance doesn’t technically make you a cash-buyer, it can allow you to act like one.  

Mortgages take months to process, often leading to an ‘onward chain’ where all parties involved need to wait for funds to be transferred 

Bridging finance can usually be accessed a lot quicker than mortgages so you can bypass the onward chain, giving you an advantage over other buyers and being attractive to sellers.

What is the longest bridging loan term?

Bridging loans typically have a term of 12 months, but some lenders are willing to stretch their terms to 18 months, or even 2 –3 years depending on the case. 

Terms longer than 2 years will usually only be considered for specific cases.  

Can I use a bridging loan to pay stamp duty?

Yes, you can use a bridging loan to pay Stamp Duty.  

This amount could be covered by a bridging loan, providing you have a way to repay the additional borrowing amount to your lender.  

Are bridging loans safe?

Yes, bridging loans are safe when they’re used in the right circumstances with a solid repayment strategy. However, we recommend speaking to a qualified advisor, like our brokers at Clifton Private Finance, before you take out a product. 

The main factors to consider with bridging finance are that the full loan amount will usually need to be repaid within a year, and like a mortgage, it is secured against a property as collateral. 

This means that in the case that you aren’t able to repay your bridging loan, your property would be at risk of repossession.  

But with a watertight exit strategy, bridging finance can be an efficient way to secure property quickly. 

Can an 80 year old get a bridging loan?

Bridging loans are designed to be short-term so there’s no maximum age limit when applying for a bridging loan. This does depend on the lender, as some bridging lenders do have an upper age limit, but there are lenders on the market who offer bridging loans for borrowers aged 70 and over. 

What is the monthly interest rate on a bridging loan?

Bridging loan interest rates usually range between 0.45% - 2% per month, depending on the case and the market rate.

Unlike mortgage interest rates, bridging loan interest is calculated monthly instead of yearly.

This is because bridging loans are short-term and, in many cases, repaid within a year. Bridging loans can be arranged without early repayment penalties, so interest is calculated monthly to ensure you only pay interest on the months you have the loan for.

Do banks still do bridging loans?

Unfortunately, mainstream banks in the UK don’t offer bridging loans.

This means that if you’re looking for a bridging loan, you won’t be able to get one using a lender you’d find on the high street.

There are a variety of specialist lenders that offer bridging loans, but because these lenders are smaller and more niche, you may need a bridging broker to access them.

How much do banks charge for bridging loans?

Banks typically charge two main fees when taking out a bridging loan – arrangement fees and interest.

But there are other costs to consider such as valuation fees, broker fees and administration fees.

Costs can vary from lender to lender, and will also depend on what your bridging loan is for (e.g., residential or commercial purposes.)

Arrangement fees are what the lender charges you to take out the loan and can range between 1.5 - 3% of your overall loan. Bridging loan interest, on the other hand, is calculated monthly. This can catch borrowers out who may be expecting an Annual Percentage Rate (APR) like with a mortgage.

Can you turn a bridging loan into a mortgage?

Yes, you can convert a bridging loan to a mortgage through refinancing, and it is common among borrowers who use bridging finance to buy residential properties.

However, whether or not you’ll be able to refinance to a mortgage is dependent on your financial circumstances, the lender, and the property you’re planning to buy.

It’s important to be sure that refinancing is a viable repayment option before you take out a bridging loan on a residential property.

Is a bridging loan more expensive than a mortgage?

Yes, bridging loans are typically more expensive than mortgages.

Bridging loan interest rates can be much higher than a mortgage, and are calculated and displayed as monthly rates instead of the usual annual percentage rate (APR) that you’ll see on a mortgage.

However, bridging loans are a short-term solution, and you’ll only pay interest on the months you’ve borrowed money for – and you can repay early without any charges (for most loans).

There are many circumstances where bridging loans are an affordable option and a means to an end - for borrowers that need to finance a property purchase quickly, it may be the only option available.

How are bridging loans paid?

The two most common ways to pay a bridging loan are to sell a property or refinance to a mortgage.

You may also need to ‘service’ the loan through the term, which means paying the interest monthly. However, you can opt to ‘roll up’ your bridging interest to be repaid at the end along with the capital.

There are also other ways to repay a bridging loan, such as selling a business or even using money from an inheritance.

The method in which you pay your bridging loan can be flexible, just as long as it is clear in your application that you have a surefire way to repay your loan when the terms are up.

What is the minimum deposit for a bridging loan?

In most cases, a bridging loan will require a minimum deposit of 25%. However, the minimum can vary depending on the lender and the specific circumstances of the loan itself.

Generally, bridging loans are secured against a property or other valuable assets, and the deposit required is often expressed as a percentage of the property's value, known as the loan-to-value ratio.

In some cases, 0% deposit bridging loans are an option, but only if you have other property or assets in the background to provide additional security.

Do you pay monthly payments on a bridging loan?

No, typically, you’ll repay a bridging loan in one chunk at the end of the loan term. Bridging loans are a form of short-term finance and will usually need to be repaid within 12 months, but there can be room for flexibility.

In some cases, borrowers may be required to make monthly interest payments. This means that each month, you would pay the interest accrued on the loan amount while the principal amount remains outstanding until the end of the loan term.

But usually, the interest is "rolled up" or added to the loan balance and paid with the rest of the loan at the end of the term. This option can help protect your cashflow so you can spend it on moving costs or refurbishments, for example.

How long does it take for a bridging loan to come through?

Bridging loans can be arranged in as little as 7 working days.

However, it depends on the complexity of the bridge loan and your specific circumstances. It may also be more expensive for you to rush an urgent application through – but not impossible.

Bridging loans are a popular option for borrowers who are under time constraints, such as buying a property at auction or breaking a chain.

What is the criteria for bridging finance?

The key factors lenders tend to consider are:

Security - Bridging finance is usually secured against property or other valuable assets. Lenders will assess the value and marketability of your security.

Exit Strategy - Lenders will want to understand how you plan to repay your bridging loan. In most cases, this is selling your old property, selling the new property (flipping), or refinancing with a long-term mortgage.

Loan-to-Value (LTV) Ratio - Lenders consider the loan amount compared to the value of the property being used as security as a percentage. The LTV ratio can vary, but most lenders will have a maximum of 60-80% LTV.

Remember, the criteria for obtaining bridging finance in the UK can vary depending on the lender and your circumstances.