Arc & Co. secures £4.5m funding for two large HMOs

Tom Savill, Asset Finance Advisor at specialist capital advisory firm Arc & Co., has secured a £4.5m residential investment loan to refinance two HMO properties in Croydon.

The borrower is a portfolio investor following a buy-refurb-lease-refinance strategy, having originally acquired the properties for refurbishment.

A bridging loan was arranged across both HMO-style properties, with guaranteed income streams secured through 25-year FRI leases.

The primary challenge was structuring the deal appropriately, as many lenders are cautious about HA tenancies due to tenant vulnerability concerns, while others cap HMO lending at 6-8 bedrooms. The total number of units across the two properties is 37.

Tom restructured the proposal from a commercial to residential investment basis, enabling access to more competitive pricing. The chosen lender's willingness to accommodate larger HMO properties and HA tenancies was crucial, alongside their capacity to support the client's ongoing acquisition strategy.

The deal completed at 73% LTV with a 5-year fixed rate of 7.1%. The transaction was structured through two SPVs to accommodate both properties efficiently, collectively valued at £6.3m.

Tom commented:

"A key challenge for this deal was in finding a lender comfortable with both the HMO structure and Housing Association tenancies, requiring careful market positioning, but the 25-year income guarantee ultimately provided the security needed.

"By restructuring from commercial to residential investment terms, we achieved significantly better pricing for the client while establishing a framework for future acquisitions.”

“This was by no means a straightforward transaction but we demonstrated commitment to finding a solution for the client, who collaborated with us to reach a successful outcome.”