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The Client’s Situation
The property was a recently-converted 6-bed HMO, with all six rooms having their own en-suite and double beds. All rooms were let on standard ASTs and the property achieved an EPC rating of C. The client was a highly experienced landlord with a growing portfolio of standard lets and HMOs, all in the UK, and specialising in adding value through conversion.
The Challenge
The client had purchased a standard 4-bedroom house for £305,000 and spent approximately £145,000 converting it into a 6-bed HMO. The client sought a HMO buy-to-let mortgage on the property and wanted to extract as much capital as possible to fund the next project.
However, the standard buy-to-let market treats HMOs with 6 rooms or fewer as bricks-and-mortar valuations or hybrid valuations, which tend to produce lower values than a full commercial/investment valuation. The key challenge was securing a lender that would permit a commercial HMO valuation on a 6-bed property.
Our Solution
We placed the case with a specialist HMO buy-to-let lender who can instruct a commercial valuation on a 6-bed HMO. Together we prepared the case with ASTs, rental income data, and a detailed schedule of works. The estimated investment value of the property was £560,000, producing rental income of £53,400 per annum. The valuation was instructed within a week and the lender’s requirements were issued day one. The commercial valuation returned as £550,000, allowing a loan at 75% LTV of £412,500.
The Result
The client secured a loan amount of £412,500, equating to 75% of the £550,000 valuation. The commercial valuation enabled the client to raise significantly more capital than would have been possible under a standard bricks-and-mortar valuation. Completion occurred within two weeks of the offer being issued.
Client Feedback
“Our experience with commercial valuations has been that they are consistent in our area, so we have a good idea of what the end valuation will be before we start a project. Once the surveyor has visited, we typically receive the report within 10 working days and then funds are very quick to be released by our lender; typically 2 weeks or so from the offer being issued. All of this enables us to recycle as much of our money as possible and as quickly as possible, so we can quickly move on to the next project and take advantage of opportunities that appear suddenly in the market before others can make offers on those opportunities. None of this would be possible without the help of our broker Henry and his knowledge/expertise in this sector.”
How We Can Help You
If you have a small HMO (6 bedrooms or fewer) and are looking to refinance or extract capital, Advocate Finance can help you access lenders willing to apply a commercial valuation, significantly improving your borrowing outcome.
We understand the HMO market, value drivers, landlord conversion strategies and how to get lenders on board who think differently.
