How to Finance a C3 to C4 Property Conversion
Turning a single house into a small HMO can feel like a big step. You may know that properties move between planning use classes when they change how they are lived in. A C3 property is a standard family home. A C4 property is a small HMO, usually shared by three to six unrelated people.
For investors, that shift can make a large difference to rental returns. Instead of one household paying rent, each bedroom generates its own income.
But with that opportunity comes extra rules and, most importantly, the need for the right finance to get you from start to finish. As a result, this will not be suitable for all investors.
Bridging finance may be an option to fund the conversion of C3 to C4. It could potentially be used to help you buy and convert the property, get the right permissions in place, and then remortgage onto a long-term buy to let product when everything is ready.
Why investors convert from C3 to C4
There are several reasons why landlords look at HMOs instead of single lets:
- Higher rental yield because rent is charged per room rather than all on one agreement to a family
- Spread of risk since voids are less damaging when other rooms remain occupied, which may still outweigh the rent of a standard AST
- Growing demand from students, young professionals, and key workers looking for affordable shared housing is one reason many investors explore HMOs.
If you are considering larger student projects, see our guide to commercial mortgages for purpose built student accommodation.
But the move from a single dwelling to a HMO isn’t as simple as changing tenants. Councils, lenders, and valuers all need to see that the property is properly converted and legally compliant. That’s why having the right finance strategy is very important.
Planning rules you need to know
By default, you can often change a property from C3 to C4 under permitted development rights. This means you don’t always need full planning permission. However, many local councils have brought in what’s called an Article 4 Direction.
If Article 4 is in place in the area, permitted development rights are withdrawn. In that case, you will need to submit a planning application to change the property to C4.
It’s also worth knowing about certificates of lawful use. If a property has already been run as a HMO before Article 4 came into force, you may be able to prove its use is established. A certificate of lawful use can confirm this, making it much easier to refinance later on.
Licensing is another layer to check. If the property will house five or more people, it will usually need a mandatory licence. Some councils also require licences for smaller HMOs.
We always recommend checking the local planning maps and licensing policies before you buy a property as it helps avoid nasty surprises down the line.
Why bridging finance may make sense for C3 to C4 conversions
A standard buy to let mortgage won’t usually work when you are buying a property to convert into a HMO. That’s because the lender wants the property to be fully let and compliant from the start.
Bridging finance fills this gap perfectly. Here’s why:
- Speed – Bridging lenders usually mov faster than high street banks. You can secure funds quickly, which is helpful in competitive markets.
- Flexibility – Bridging loans can be secured even if the property needs work or the planning position isn’t sorted yet.
- Funding works – Many lenders allow you to borrow against both the purchase price and the cost of works, releasing funds as you progress.
- Clear exit – The usual plan is to switch to a long-term HMO mortgage once the property is ready. Lenders like to see this exit mapped out before you take the bridge.
Find out Your Options
Step by step: How the bridge-to-term journey works
1. Before you buy
You identify a suitable property. You check Article 4 rules, licence requirements, and demand in the area. We’ll run the numbers with you, and shortlist lenders that could take you out of the bridge when the time comes.
2. Arranging the bridge
We match you with the right lender based on your project. The facility is set up to cover purchase plus works or it may be for just the works if you plan to use your own resources for the purchase. Interest is usually retained so you won’t have to budget for monthly payments. Completion is typically quicker than a standard mortgage.
3. Planning and works
If Article 4 applies, you apply for change of use. If not, you prepare for licensing. You carry out the works, often including adding bathrooms, reconfiguring layouts, and upgrading fire safety. The bridge funds both purchase and works. You should take professional advice regarding the conversion due to the number of requirements that need meeting.
4. Getting the property ready
Once works are finished and inspections are passed, you can let the property. This may mean several assured shorthold tenancies or licence agreements depending on what your exit lender prefers.
5. Remortgage exit
Once the property is a compliant HMO and fit for letting, we can look to arrange the remortgage. The lender and valuer need to see evidence of use class, licence, floor plans, income, and safety compliance. Once the remortgage completes, you repay the bridge and secure a long-term fixed rate.
What lenders and valuers look for
When it comes time to refinance, the valuer and lender want to see:
- Planning consent or a certificate of lawful use proving the C4 status
- A valid HMO licence where required
- Evidence of fire safety measures like fire doors, alarms, and escape routes
- Proof that rooms meet minimum size standards
- Tenancy agreements and rent schedule showing income
Without this evidence, you may struggle to secure the valuation you need or the lender’s may not be comfortable financing the property.
Risks to watch out for
Like any investment project, converting C3 to C4 has risks. The main ones include:
- Planning applications taking longer than expected
- Unexpected build costs once work begins
- Difficulty proving lawful use without enough records
- Delays in letting rooms which affect the remortgage exit
You can manage these risks with good preparation and the right advice. Always budget a contingency for works, line up your professional team early, and keep a realistic timescale for planning.
Why choose Kerr & Watson
Where Kerr & Watson stands out is in how we guide you through the whole process.
- We start with the end in mind. We don’t just get you a bridge, we also look at the exit, then structure the bridge around your plan.
- We’re whole-of-market, meaning we can access both specialist bridging lenders and long-term HMO mortgage providers.
- We also help you protect your personal finances, with tailored insurance, from life cover to income protection.
Conclusion
Converting from C3 to C4 can boost your portfolio’s returns and spread risk across multiple tenants.
But it requires careful planning and, above all, the right finance structure.
Bridging finance may give you the room to buy, convert, and get the paperwork in place, before exiting onto a long-term mortgage. They will not always be the correct form of finance and not suitable for everyone, so professional advice should be taken.
Contact Kerr & Watson today to talk about finance for your C3 to C4 conversion.
