Supporting a property investor’s plans to convert a large hostel into a HMO

Loan Amount:
£365,000

Property Value:
£840,000

LTV:
65%

Commercial property often presents many opportunities for investors. They can allow buyers to move into different sectors and expand their portfolios. Commercial tenants can provide landlords with consistent income, while conversions into residential spaces may open entirely new windows.

But, where multiple commercial interests come together at once, things can get complicated. A pair of investors came to us to raise funds for a new investment. They wanted to purchase a large, yet empty, hostel. Planning to convert it into a conventional HMO property.

For this loan, the investors planned to secure it against a commercial asset they already owned. However, the building in question was already being utilised by other businesses. With so many moving parts, our underwriter had to move quickly to get everything lined up.

Differing commercial tenants all have one thing in common

We examined the background of the businesses involved to ensure there would be no complications with the security. We could see the property was being used by differing kinds of businesses. While having differing sets of customers and demand, our underwriter still saw all the businesses had long-term leases in place, stretching over several years. This secured income for the investors, bringing in extra assurances.

For additional support, we secured paperwork from the investors showing how they planned to cover their conversion plans. As the borrower had a strong financial background, experience in commercial property, and a conversion strategy with lots of potential, our underwriter was happy to issue the funding.

Two wrongs may make a right

Converting commercial spaces into residential assets is often easier said than done. Especially in a large project such as this one where all of the large property needed work. But, the legwork may prove worth it in the current market. The residential world is desperate for more stock. At the same time, two major shifts are coming together to encourage landlords to meet this demand.

As interest rates continue to rise, high street lenders will react. So far, many banks have been pulling their buy-to-let mortgage deals. This makes it harder for landlords to build a portfolio through the usual means. At the same time, many commercial properties remain empty.

Property entrepreneurs could take advantage of this. There could be opportunity in meeting residential demand by converting underutilised commercial buildings. Specialised finance can support these kinds of plans, especially as mainstream sources shy away from uncertainty. We can provide funding for a range of commercial and development plans. Also, if you’re unsure of how your conversion strategy will be affected by local planning rules, why not check out our blog which breaks down what you need to know about planning permission?