Paragon HMO application?

Hi Sunny,

Sorry I can't tell you what the exact underwriting criteria will be on this.

However, until you have a survey/valuation done for paragon you will only get provisional answers as nothing can be definitive until a lender sees the full picture.

Reply to the comment left by Neil Patterson at 11/05/2018 - 09:36
Here's a handy trick I learned by accident:

- First rent out your family home to a family, as a non-HMO, with a non-HMO mortgage from a non-HMO lender.

- Do that for six months or so

- Call your lender and tell them that you're converting to an HMO.

- Lender must now choose whether to lose your business or be a HMO lender on the quiet.

- When I did this with my non-HMO lender, they chose to carry on lending even though the family home was now an HMO six-bed bedsit.

- Result: you get HMO income without paying for an HMO mortgage. That was worth the £ equivalent of an extra bedroom, to me anyway.

I did this in 2015. If the lending rules now forbid this sort of discretion among lenders, please someone tell me to stop recommending it!

Isn't the first step to get the local council officer round to detail in writing all the things they will deem necessary in order to give it a licence? If the list of changes is not too drastic, you then present that list with your mortgage application and you hopefully get a mortgage offer on condition of compliance with the local authorities' requirements. Paragon will obviously need a survey too, but if the local authority have done a compliance list, that will be definitive and prevent the surveyor talking a lot of rubbish about HMO compliance and get them to concentrate on structural matters instead.

I am sure that Paragon are perfectly used to advancing loans where work is needed on a property.

My final point: If you want to buy an HMO, better to try to get one that is fully up and running already. And if you must buy this property, make sure the changes needed to make it an HMO don't end up devaluing the property e.g. ripping out period features.

Good luck!

That will depend on lenders and luck

Just to say Sunny are you sure you will get a HMO licence and if you did the planners could close you down if your area has a Article 4 Directive which means you need planning. (Planners and HMO licensing tend to work separately). In my area I would have no chance of buying a house and converting to a HMO. I would only consider buying an already existing HMO. Next door to one of my HMO's the owner tried to get planning and although the house was too big for a family home and very suitable as a HMO they were turned down.

Reply to the comment left by St. Jims at 11/05/2018 - 11:21
Sounds like an useful strategy and will definitely use as plan B.

Reply to the comment left by Simon Williams at 11/05/2018 - 11:24Thanks for many useful comments.
We can get the council to visit the property and get a compliance report. I am not sure how much the lender will take that into account and the work still need to be done post completion.
The property is set up perfectly for HMO or multiunit with minimal change in layout needed. The changes are mostly regulation compliance issues like fire alarm system, sound proofing (if multiunit) etc. I am confidence it will not devalue the property if I want to sell it as family home in future. The area is not much of HMO zone but has potential with a new large retail/leisure park opened short walk away and also 0.2 miles from tube station, overground and cross rail which connect to central london and Wembley station. I had done multi units before but not HMO so a bit new to HMO financing.

Reply to the comment left by Yvonne Francis at 11/05/2018 - 14:55
Its not a additional licensing or article 4 zone. The property works as HMO or multi unit and has 4% return on single family let (which is not the worst in zone 4 west London), so plenty of options.

I'm not familiar with the specific London market but I am assuming that there is, effectively, no difference in value between use as a private residence and an HMO. In that scenario I would go with the suggestion above and apply for the mortgage based on a single family letting. However you should read the lender's Ts & Cs very carefully as it's possible that change of use from single residential to HMO (even if planning permnission is not required) may require their permission and if they suspect that this was always your intention then they might not grant it.
If there is a difference in values between the 2 uses and you need to apply subject to planning, upgrading and the grant of a licence then, as a surveyor surveyor I would advise a significant retention to be held back (perhaps 25% of the advance) to ensure that the works are done and the licence granted.

Paragon are good for HMO lending but require LOTS of information about all your property and income and generally have lower LTV and higher rates than a BTL mortgage on a family property. So if there isn't much difference in the achievable rent it might be better to look elsewhere. Also if you have to do sound proofing for the HMO and if its the same requirement as flat conversions it can be quite difficult as its up to you to do whatever work is required with no guaranteed acceptable construction standards and then get it tested to certify the levels of sound transmission. If it doesn't pass you have to do more which can have expensive knock on effects. So I would definately advise getting into the detail of of what your local HMO standards require.