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How to maximise HMO valuations

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HMOs remain an ever-popular investment for our professional landlords. In many cases we see investors purchase a residential property with the intention of converting that property into a HMO.

Once converted, investors look to refinance at the higher investment value of the HMO (as opposed to the bricks-and-mortar value) with the objective to recycle their cash funds to move onto the next project.

We intend to provide clarity to a couple of questions we regularly get asked by our HMO landlords such as: What’s the actual difference between an Investment value and a bricks-and-mortar valuation? Which lenders can lend against the Investment value of a property?

What is the actual difference between an Investment Value and a Bricks and Mortar Valuation?

Investment valuations will generally provide a premium valuation compared to a bricks-and-mortar valuation. One of our cases provides us with a good example of this. For instance, the property based in Ipswich, Suffolk was converted into a 5-bedroom HMO with an en suite added in every room. The client originally approached Kent Reliance, (this lender will only lend against a bricks-and-mortar valuation on HMOs). The valuation was carried out and came back with a value of £200,000.

As the client wasn’t satisfied with the value given, we approached Shawbrook who can lend against an investment valuation on a property. The valuation was carried out and the valuer provided an investment value due to the additional en suites. Therefore, using a 10% yield based on the rent, the new valuation came back at £250,000.

In this particular example, an additional premium of £50,000 was given on an investment basis. This is probably more of an extreme example and it’s worth highlighting that premiums can vary from location to location.   

Which lenders can lend against the Investment Value of a property?

The likes of Kent Reliance and Precise can lend against HMOs, however, they will only lend on the bricks-and-mortar valuation. Other lenders such as Shawbrook, Paragon and Lendinvest can lend off the investment value where the property has 7 bedrooms or above. Shawbrook is unique in that they can consider an investment value on HMOs with 6 beds and below (subject to valuation comments).

There are several lenders in the market that can now lend against HMO properties but not all lenders will give an investment value. At Advocate Finance, we believe it is important to have a mortgage broker who not only fully understands HMOs, but who also has an in-depth knowledge of which lenders will lend on the investment value and which will not. At Advocate Finance all our consultants have a deep understanding of HMOs and of the specialist lending market as we deal in this area day in day out. So, please feel free to contact us and find out more about which lenders can provide you with an investment valuation.

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David Tonks | 01206 544 333
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David Tonks | 01206 544 333