Our clients often ask what do surveyors consider in their valuation and the values the lenders lend against?
Is the property worth more as a house or an HMO?
- If the property is in a high value postcode it could be worth more as a house.
- If the property is in a low value postcode it could be worth more as an HMO on an investment-based valuation.
What works have been undertaken and how much has been spent to convert the house to an HMO?
- If a small HMO, not in an article 4, with no works undertaken and you have simply just let to multiple tenants then a surveyor is likely to use the bricks and mortar value i.e., value as a house etc.
- If significant works have been undertaken i.e., kitchenette in rooms, extra bathrooms, en-suite and a communal space/kitchen then the specialist lenders can often lend off the investment valuation.
What planning is in place i.e., planning for a sui generis HMO or no planning needed (under 6 bedrooms and not in an article 4 area)?
- If in an article 4 regardless of size some lenders can lend off the investment value.
- If planning for a sui generis HMO i.e., 7 bedrooms and above then the valuation will be based off the investment value.
How much do you want to borrow?
- Typically, the lower rate lenders for small HMOs will lend off the bricks and mortar value or a blend between this and the investment value.
- The specialist lenders mainly lend against the investment value which can often release more capital.
What property values do the lenders lend off?
- Lenders don’t always declare whether its bricks and mortar or an investment-based valuation which is an area we make sure we understand on each application.
- In general, the lower rate lenders lend off the bricks and mortar value for small HMOs and the specialist lenders for both small and large HMOs use the investment based valuation.
Is the HMO in established HMO location?
- Lenders like an established HMO market otherwise the lender will lend off the bricks and mortar value or they may be nervous on HMOs in a new territory.
Are there other HMOs which have been let and sold?
- This is important because it creates evidence for the surveyor to find comparable sales and lettings to build their report supporting your figures.
Worked example recent case: