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The Client’s Situation
The property was a 6-bed HMO, consisting of four en-suite rooms and a licence in place allowing all rooms to be let on individual ASTs. The client was a highly experienced landlord with a large UK portfolio of single lets and HMOs. Although his entire portfolio is in the UK, he resides and works in Switzerland. His investment model involves purchasing properties, converting them into HMOs, and then refinancing them to release capital which funds the next project.
The Challenge
The client wanted to maximise capital raised from the refinance to fund his future HMO conversions. The property had recently been refurbished to a high standard, and four of the bedrooms included en-suites, giving a strong basis for a commercial valuation. However, most lenders will only apply commercial valuations to HMOs with seven rooms or more.
We also needed a lender who could lend to an ex-pat, while still being able to consider using a commercial valuation to achieve a higher loan amount.
Our Solution
We placed the case with a lender who could:
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Offer commercial valuations on HMOs with fewer than seven rooms
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Lend to ex-pat applicants
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Consider the higher valuation figure if supported by the surveyor
The valuation was instructed. The client had expected a commercial valuation between £350,000 and £380,000.
The surveyor’s market valuation was £325,000, which is what most lenders would have used because the HMO had only six rooms. However, the valuer also provided a commercial valuation figure of £360,000, which significantly improved the client’s ability to raise capital.
If assessed as a standard HMO, the maximum borrowing at 75% LTV would have been £243,750 (75% of £325,000).
Using the commercial valuation, the lender was able to offer £270,000 (75% of £360,000).
This gave the client an extra £26,250 in borrowing for future investment.
The final finance package agreed was:
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Commercial valuation: £360,000
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Loan amount: £273,050, including a 1.25% arrangement fee
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5-year fixed rate
The Result
The client was able to raise substantially more capital than would have been possible with a standard valuation, allowing him to recycle a significant amount of cash into his next HMO project. The lender accepted both the ex-pat status and the commercial valuation basis, making the deal highly successful for the client.
Client Feedback
“As expats, we have always found it challenging to obtain credible mortgage providers for HMOs, especially lending against commercial valuations. Working with Advocate Finance (Henry Barley) was great given their strong relationship with various mortgage companies, one in particular that met all our needs. We obtained a strong commercial valuation, which enabled us to recycle most of our cash, and at very favorable rates. Even when we faced challenges around documentation, Henry worked very hard to liaise with the mortgage provider and ensure we made it to execution. Overall, very happy working with Henry Barley, who has now become our official mortgage broker for all future projects.”
How We Can Help You
If you are an ex-pat landlord, need a commercial valuation on a small HMO, or want to maximise capital raised for your next project, Advocate Finance can help structure lending to achieve the best outcome. We understand complex scenarios, lender flexibility, and the valuation nuances that can significantly impact borrowing power.
