The hurdles of financing supported accommodation projects and making sense of it all!

So as I’ve said. If you are new to this area get a specialist mortgage broker, and make no assumptions.

There are a smaller pool of lenders prepared to accept supported accommodation or supported living tenants than private developments full stop. Why? Mortgage brokers consistently tell us that funding providers fear negative publicity if repossession leads to vulnerable people losing their homes. Additionally they want the lease signed before they lend; leases won’t be signed until a developed property is ready for use and ‘letters of intent’ are of limited value.

Financially the granularity starts here.

With supported accommodation (no overnight stay) you can achieve similar lending rates as any private mortgage rates. If there is ‘care’ denoting more hands-on ‘several times a day’, feeding and personal hygiene (but still not overnight) the rates will be higher, but potentially acceptable to a regular BRRL model.

Where the situation gets tricky is valuations and ‘getting your money out’. Fewer providers mean a narrower choice of valuers to start with. 3B HMOs will tend to get a bricks and mortar valuation. If the property has C4 planning or you really can argue that that this in no way could be a family house and even better you are in an Article 4 area, you may get a commercial valuation. However, net yield will rarely be taken into consideration; ie you are likely to end up getting a lower commercial valuation than a similar private rental HMO, even if you take home more profit because you are not paying bills, management, voids, or repairs; it is the headline rental figure that tends to be taken into account.

In some cases valuation on a lease basis is possible if you have a ‘blue chip’ lease. The valuation rate will be highly affected by the quality of the lease: ie the financial value and whether the housing provider is considered a ‘blue-chip’ Registered Provider (there will be a list on your Council website (although some do not engage with private landlords, but focus on building their own housing), and length of lease without break clause. According to my mortgage broker his experience is that any companies that turn over less than £10m and are not nationwide, open for less than 5 years would not be considered bluechip, and to expect a valuation uplift on the strength of the lease is dicey.

All this said, times are changing fast as more landlords enter the market. More beneficial financial products will likely be brought to market, and valuers working with mortgage providers will have more comparables to give you something that more fairly represents the value of your property. This blog is only a warning guide. If you’ve found some great lending products let us know!

So to reiterate. If you are new to this area get a specialist mortgage broker, and make no assumptions.