Lender provides £945k for guesthouse to HMO conversion

Avamore Capital has provided a £945,000 refurbishment loan to convert a former guesthouse into a house of multiple occupancy (HMO), demonstrating how specialist lenders are adapting loan structures to accommodate planning delays.

The transaction encountered complications when the planning decision was delayed by a month shortly before completion. To prevent the deal from stalling, Avamore conducted a commercial valuation and lent against the property’s commercial value, providing the initial funding required.

The lender subsequently agreed to increase the funding once planning permission was granted, allowing the transaction to proceed. The property had previously operated as a bed and breakfast, requiring careful assessment of its existing use value.

Flexible lending approach

According to Aidan Lesslie, relationship manager at Avamore, the loan structure required changes throughout the underwriting process due to the planning approval delays. “We worked closely with the borrower and broker to ensure all parties were aiming to reach the same goal and able to meet the completion deadline needed to secure the site for the borrower,” Lesslie said.

The case follows recent regulatory enforcement action against landlords who fail to maintain properties to required standards, highlighting the importance of proper refurbishment funding for HMO conversions.

Zahrah Mudasiru, underwriter at Avamore, stated that the transaction required a detailed assessment of the property’s existing use and a considered approach to valuation. “By working closely with our professional advisers, we were able to establish a robust lending position while maintaining the speed and certainty our client required,” Mudasiru said.

HMO market implications

The conversion of former commercial properties into HMOs continues to attract investor interest, though the sector faces increasing regulatory scrutiny. Lettings agents in some markets are managing significantly higher property volumes, reflecting demand in the multi-occupancy rental sector.

The borrower has since submitted another case to Avamore, indicating continued investment activity in the HMO sector despite planning and regulatory challenges facing property conversions.