With tenants gone and September looming, the temptation is to turn the living room into one more bedroom, yet the change that lifts yield on paper can be the one that makes the mortgage harder to place, so the improvements worth making are not always the obvious ones.
Every summer, landlords of student lets have the same, brief opportunity. The tenants have left, the new intake is only weeks away, and the empty house or apartment is the only real chance all year to refurbish, repair, or improve before the new term begins.
It is a sensible thought process, because a house in multiple occupation, or HMO, can earn considerably more than a standard let, and every extra room looks like another slice of yield from the same square metres. The trouble is that the most obvious way to add a room is often the one that quietly works against you.
We saw a clear example of this recently. A landlord came to us looking for an HMO mortgage to buy a property through a limited company, and was considering dividing the lounge to create an extra bedroom and lift the rent. On paper, the yield improved. In practice, it created a problem.
Where significant works are planned to a room that is intended to be let, lenders won't offer a term mortgage. This is because they will work on the basis that the property won't be let at all until works are complete and, as such, you won't be generating the rent to pay the mortgage.
Whilst it's a moot point given all this, the rent from the additional planned room would also not be used in the affordability calculation, so the loan that might be achieved after the work is finished would be reduced.
What's more, if you take a straightforward three or four bed home and make structural changes, that push the property firmly into the realm of specialist HMO, you immediately narrow the lenders available to you, which is likely to push you towards higher interest rates.
The technicalities are subtle. If you simply offer what was a dining room as a bedroom, and make no changes, that may be accepted on an HMO basis, but using a standard buy-to-let mortgage range - attracting lower-end interest rates. The room would just flip back to its previous guise if it were to be sold as a single-family unit property. This is a consideration for the lender in case they have to repossess.
It would be possible to do these works - but a bridging loan is the product for the job, which would be paid off on completion of the works with a buy-to-let mortgage.
In the case of this client, we advised on the plans in our very first conversation. The landlord was keen to avoid the cost of a bridging loan, and took our guidance on the overarching impact of the work into consideration. He chose to leave the lounge untouched, stayed within standard buy-to-let product ranges whilst letting on an HMO basis, and secured a competitive deal with plenty of choice.
Borrowing for an HMO through a limited company is now commonplace, but the property still has to work for the lender, the valuer and the market.
The lesson is to make improvements with the future of the property in mind. A house renovated to serve purely as an HMO narrows the pool of future buyers to just the niche of other HMO investors. A property that maintains a structure that can be configured as a family home again if need be keeps both its value and its financing options open.
That same room matters a great deal to the people you are letting to. The student market has moved well beyond the days when any set of box rooms would fill, and today's tenants, along with the parents who guarantee the rent, look closely at the shared spaces, the kitchen, and the general standard of the house before they sign.
A comfortable communal room is not wasted floor space; it is one of the things that lets a house year after year, keeps good tenants in place, and earns the word of mouth that fills the next set of rooms. Stripping it out for one more tenancy can weaken the very demand that makes the property work.
The upgrades that genuinely last, then, tend to be about quality rather than quantity. Fast broadband, space to study, en-suites where the layout truly allows, sound insulation between rooms, secure bike storage, and an energy efficiency rating that meets requirements all lift what a house can charge and how reliably it lets.
By fulfilling this brief, they manage it without disturbing the layout a lender wants to see. Improving the fabric of a house, rather than carving it into ever smaller pieces, is what can protect the rent and the value together over the years you hold it.
Timing and compliance are worth planning in from the start as well. An HMO licence does not have to be in place on day one, since lenders will usually allow an application to be submitted within 30 to 60 days of completion, but licensing, room sizes, and local rules are all far better checked before the builders arrive than after.
Landlords who make the most of the summer window are the ones who plan the refurbishment and the finance as a single decision, and who ask the question before the first wall ever comes down, rather than after.
