Our clients were professional landlords with a portfolio of Houses in Multiple Occupation (HMOs) and Multi-Unit Freehold Blocks (MUFBs). They had recently purchased a 28-bedroom MUFB using a bridging loan. The property was now refurbished but remained untenanted, and the bridging loan was approaching the end of its 12-month term.
Due to the size of the property, most banks were unable to offer a term facility until the building was significantly pre-let. A further complication was that the clients had taken on a substantial six-figure sum of unsecured borrowing, in addition to personal loans from friends and family, all of which needed to be repaid.
We secured an initial £2M bridging loan to repay both the existing bridge and the unsecured debt. This was subsequently rolled into a cross-securitised £4.2M term loan at 75% LTV, based on the investment value of the clients’ portfolio.
The first challenge was the level of unsecured debt, which was so high that the clients would not have passed many lenders’ initial credit score requirements. This was compounded when a small default appeared on their record due to a missed payment caused by one of their tenants.
We identified a lender who was prepared to consolidate all the unsecured debt on completion, leaving the clients in a strong cash position. The original plan had been to refinance the large MUFB alongside two of the clients’ HMOs onto a term facility. However, renovation delays meant it became imperative to refinance the bridging loan before the MUFB was fully tenanted.
The lender instructed a valuation which provided both a vacant possession value and an investment value. Most lenders would only lend against the vacant possession figure and insist that rental agreements were already in place to cover their stress tests. As the MUFB was not yet let, we secured terms where the lender provided a bridging facility based on the vacant value. This facility cleared the expiring bridge and all of the clients’ unsecured debt.
With this breathing space, the clients were able to advertise and let the units in the MUFB. We then arranged a term loan on the MUFB and two HMOs, cross-securitised so that any surplus rental income from the HMOs contributed towards the overall affordability requirement. This structure meant that we were able to exit the bridging loan and transition to the long-term facility once the MUFB reached just 70% occupancy.
The strategy worked exactly as planned. All existing loans were repaid or refinanced on time, enabling the clients to avoid defaulting on the bridging loan or struggling with expensive personal debt.
The new £4.2M portfolio facility at 75% LTV replaced the bridge with long-term, stable finance and released approximately £1.1M in additional capital. This gave the clients not only stability across their portfolio but also substantial funds to pursue new acquisition opportunities.
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