HMO mortgage wet rot

cute_blondexx

Hi, I'm buying a property with an HMO mortgage and hoping to turn it into an HMO. It's got 6 bedrooms and everything is in good order apart from there are some timber and damp issues. There is a large hole in the floor in the living room where there is wet rot. I've done a timber and damp report and it shows that the rot extends across the majority of the floor and so a new timber floor is needed. There is some rising damp in the kitchen also which requires some treatment.

I'm concerned as a have the valuation next week and I'm worried that they won't lend the money due to these problems. I've spoken to the lender directly and they said that they don't do retentions either. I was hoping to go along to the valuation and show them the timber/damp report and assure them that it isn't dry rot, which is worse, only wet rot and that I am aware of it and planning to fix the issue asap.

How likely do you think it is that they will lend the money? I've heard that with a buy to let/HMO property the property has to be seen as habitable and I'm worried this will go against it.

There are many HMO's in my area and I think this property has great potential as an HMO. The rooms are very big and there is a huge kitchen and bathroom.

What are my other options? I really don't want to do bridging finance as this is very expensive and risky. I love the property and it's a great investment so really don't want to have to pull out.

Many Thanks

Victoria

ACG

They are not going to lend against the property with a hole in the floor, damp and rotting wood. If you meet the surveyor, they will likely just say whatever it is you want to hear and do the report as they plan on doing the report regardless.

Presumably you are using a broker? As there are not many HMO products available directly. If so, what have they said?

Bridging loans are expensive, but they should not be risky. In order to get the bridging loan, you have to have an exit strategy - that would presumably be the BTL which you should be able to confirm will get offered once the rot and damp issues are resolved?

cute_blondexx

Yes I'm using a broker and he keeps saying it's down to the valuer's discretion - I've told him about the wet rot and he hasn't said it's a problem.

If the mortgage is declined after the valuation is it likely they will still go ahead with the mortgage but just refuse to lend until the work has been done? Would I need to pay for another valuation once the work has been done or is it easy to just tell them the work has been done etc? How does it work? I've always been really wary of bridging finance but I guess I only need the money for a month or two and it can then be repaid when the mortgage is agreed?

Also do you think they would lend the money as soon as the wet rot/damp has been sorted or would they make me wait until all fire doors/decorating etc have been put in for it to be a fully licensed HMO?

Many Thanks!

Victoria

ACG

It is down to valuers comments, but in this instance I think it is pretty safe to say you will not get an offer until the work has been completed - hopefully I am wrong but if they go in to the property, I cant see it happening.

Hopefully once the issues have been sorted it will just be a case of paying for a reinspection and everything will be fine, but it will depend on the lender and what comes back in the initial report.

cute_blondexx

Oh that's very annoying after I've paid £480 for a valuation fee and the broker has led me to believe it will be fine. How much is it generally for a reinspection?

And do many people do it this way around? I.e. get the mortgage turned down after valuation, then have to get a bridging loan and go back to the same mortgage? I'm just concerned I'm losing so much money in fees etc - should I have just gone straight to the bridging loan?

ACG

Cancel the survey?
Ordinarily, I would get an AIP for a Mortgage and apply for the bridging loan. However, there are times where the survey comes back with unexpected issues which mean we have to go with a bridge first, but I would never knowingly apply for a Mortgage I know will not get accepted - I just feel that it would be a waste of my time and the customers.

A reinspection could be as little as £70-80 or as much as a new survey.

The other issue is that not all mortgage lenders like to be the exit strategy for a bridging loan, I imagine because of the type of mortgage you are applying for (HMO) you should be fine on that front, but it could be worth double checking.

cute_blondexx

Am i losing a lot of money doing the valuation first though before the bridging loan? As at least I will have the valuation now so it doesn't need to be redone later..

I feel like it's too late to cancel it as I will be messing people around and I will most likely lose my £480 valuation fee.

So perhaps it will be good to know their comments from the valuation now and at least I can take that into account when making the changes to the property before they come and reinspect it.

Also with a bridging loan, does that require another valuation? How long does that take? I'm really concerned with time as this is a repossessed property and the agent is pressurising me to move quickly.

Many Thanks

ACG

You usually only lose the fee if it is carried out, you may lose an admin fee but not normally the full fee.

Dont take this the wrong way, but you need to toughen up. You are buying a HMO - you are arranging finance to run a business. It might be messing people around, but you are doing this to make money. Why throw £480 down the drain?

You are going to have tenants who take the proverbial, you are going to have management companies (if you use one) who try to fleece you or are useless there are good ones out there, but you are going to find out very soon if you are too nice, people will push it.

I am really surprised your broker is allowing you to proceed knowing that there is a hole in the living room in addition to damp in full knowledge that the lender does not do retentions. I just cant understand why he/she would not advise you against it.

You say a bridging loan is expensive, it is, but it is usually allowable as a business expense. Added to that, it is surely better to spend money on something that will help you rather than a valuation that you know is likely to come back saying the lender will not lend in its current state. I know people see brokers as glorified salesmen and some are, but this is where an advisor should be advising and helping you to avoid losing money unnecessarily.

I dont mean this post to come across as grumpy, but you do need to start thinking like a business owner.

cute_blondexx

Thank you, I appreciate that, you are right. I don't know why my broker has allowed me to proceed like you say. I am going to ring him on Tuesday, after the bank holiday weekend, and see if I can stop the valuation and get my fee back.

If he says I will lose my fee and may as well proceed, would I have to pay another £480 later down the line? Or like you said previously about the inspection, just the inspection cost?

Do I need to do another valuation as part of the bridging loan? Or will the same valuation be used for the mortgage?

Many Thanks

ACG

You may be able to get a reinspection, you may need a new valuation - it depends on the lender.

The bridging loan company will do their own valuation, some may just do a desktop valuation. Again this sort of thing is lender specific.

cute_blondexx

Ok thank you, how long does a bridging loan normally take?