Keeping you updated with the latest developments and news within the finance industry.

HMOs are rapidly emerging as a distinct investment class, surpassing traditional buy-to-let properties in popularity. With their ability to generate higher income and accommodate more tenants, HMOs are proving to be lucrative investments nationwide.

We’ve witnessed a surge in customers purchasing and developing HMOs, or acquiring existing ones that are already operational. There is certainly a noticeable positive trend associated with HMOs and we’ve been taking proactive steps to ensure our clients have access to the best financing options.

Mainly we have focused on expanding our panel of lenders for HMOs, including both cheaper lenders and those slightly more expensive. We’ve been talking with lenders to understand how they are valuing HMO properties, who is lending on sub 6 bedroom HMOs, in non-Article 4 areas and also on a commercial basis.

We’ve also been interviewing existing lenders for a HMO refurbishment panel, so we can understand who will lend off the valuation as is, and the valuation on an investment basis. We’ve found that in certain areas of the UK, such as the Midlands and the top part of the South East, lenders will focus on the value of the purchase price, and the cost of work against that purchase, which can really limit the amount they will lend.

This all means that with our newly extended HMO panel, we can help customers progress quickly with getting their HMOs refurbished, completed, redeveloped and then refinanced onto long term options.

Very interestingly we’re seeing a lot of competition between lenders for the £1 million+ space, and there has been a steady decline in prices and fixed rates, some down to 4.95% fixed, to win over the customers.

Some of the ways the lenders are achieving this is with relatively high fees that enable customers to have a favourable rate. These fees can be included in the loan amount, and by the time the 5th year comes along, we’d expect to see an increase in valuation of the property, therefore the additional fee is offset.

There has also been the introduction of specialist products that are tailored to support prime residential properties with low yields, particularly those located in central London. These properties, while high in value, often yield lower rents due to their premium evaluations.

For investment loans exceeding £2 million, lenders are pricing off matrix so not necessarily the published pricing. This allows for a competitive tender process, ensuring the best rates for suitable projects and clients.

This dynamic pricing strategy is particularly relevant for current refinancing opportunities, whether for existing investments or completed developments intended for long-term retention. Some developers are strategically retaining properties for investment purposes in the short term, leveraging relatively low penalties instead of opting for bridging loans. This approach allows for the gradual sale of units over the next 4 to 5 years, maximizing profitability without immediate sales in the current market conditions.

In this particular sector we are seeing fluctuations in prices, as well as some new innovations from lenders. There are continual changes occurring in the swap rates, (when lenders lend to eachother) albeit marginal.

Rates are in the low to mid 5% for refinance, and we are seeing a lot of customers coming to us for short term product switches where there is little to no new underwriting, valuations or legal fees. They allow our customers additional years at a higher rate, but then if rates do come down, they can reconsider that refinance position again.

Lenders typically have to apply a higher stress test to anything under 5 years that is not fixed. Anything over 5 years is a lower stress test and they can do that at the 5 year fixed rate. To get around this we seeing innovation from lenders who are deliberately doing very low penalties in years 1 and 2. Why? The Buy To Let market rates still feel expensive at the moment, so lenders are in essence giving customers the ability to refinance in the short term, as it might prove to be a better deal even with paying the penalty. Customers will have benefitted from their 5 year fixed rate to qualify the loan.

A good 5 year fixed rate in this sector would usually be from 7% and we’re seeing a few lenders drop their rates so they can be seen to be competitive in the space and gain more market share. We’re expecting rates to drop to mid 6% to 7%.

We’ve been working with one of the high-street lenders to help them understand where their levels of debt service cover needs to be. This is how they qualify the loans, and currently we’ve explained they are far too high.

From working closely with them, they will be changing their stress testing which our customers will truly benefit from. They will be launching a new portal we have helped them develop, that will help our commercial investors and trading businesses, whether that is for property finance mortgages or business loans, so we’re very much looking forward to that being announced, and will share more about it when that has been released.

An interesting time for development finance and we’ve been closely monitoring the market; where do our lenders sit, who’s sharing innovative products. One particular product has a fixed rate of 9.25%, a 1% fee in, a 1% fee out and no penalties up to 65%.

We’ve also been joined by a new lender in the development space, who is an existing lender for refurbishment, conversion and bridging. It’s great to have them join this part of the market as they are supporting loans above £1 million, with fees of 1 -2% with a variable position of around 10.2%. What’s a big win for our customers using this lender is that there are no exit fees, where typically at the moment with the mid market specialist challenger banks, they are sitting at around 5.5% above base with a 2% fee in and 1.5% fee out.

In commercial development, we have been building out our commercial development finance panel. We are seeing clients who don’t have tenants in place, but have good locations and good properties that need funding to build them out and let them. We are seeing innovation from lenders wanting to enter this space and funding of up to 65% of gross development values.

Another very productive month in the business finance market as we’ve had the introduction to new lenders which have opened up additional opportunities. One of which offers financing for energy efficiency improvements for businesses and their buildings, and it gives us the ability to finance things like heat pumps, LED lighting and solar panels.

This will all become very important to businesses as we hit 2028 and a lot of new EPC regulations will be in place. Whether you are a landlord or a property owner, you will be required to steadily increase the energy performance starting from an E, going through to an A. There are some highly affordable solutions to achieve energy efficiency, and it’s a great way to reduce costs of any business.

The other is a luxury asset lender, who will lend on items such as art or your non-traditional luxury items that still hold good value. Both present to us new opportunities for providing business finance and we’re looking forward to working with them more.

For more information about any of the points listed in this update, don’t hesitate to get in touch via our Contact Us page.