Your HMO Property is valued in one of two ways — either Brick & Morter or on an Investment Basis (aka Commercial Valuation).
Brick & Mortar valuation is your standard residential property valuation. It is based on the resale value of the property as a typical home. Comparable with other none-HMO properties on the street.
An Investment Valuation instead calculates the value as a business. The surveyor will base the amount on a multiple of the Rental Income of the property as an HMO. It is based on the resale value to another HMO Investor.
In different circumstances, one may be better than the other. An Investment Valuation may give a higher value. Except mortgage products are fewer, giving higher rates and lower LTVs.
The decision of which valuation type, is not yours. It is up to the mortgage lender. Some offer investment basis and others dont. Some have conditions such as the property being a certain number of rooms, as well as having a licence.
HMO Investors should note that the Purchase Price and Value are not the same things. If you agree a higher Purchase Price than what it is valued on a Residential home, you often negotiate it down. On HMO's it's not unexpected to pay money on top of the mortgage & deposit.
HMO Mortgages are available up to 85% LTV for Purchase or Remortgage. That's just a deposit of 15% of the property value.
85% LTV Buy to Let Mortgages are the highest LTV you can get as a property investor.
In 2017 only one Buy-to-Let lender KRBS offered 85% LTV Mortgages. In 2018 they joined by Kensington Mortgages and Vida Home Loans in 2019.
The valuation of House of Multiple Occupation (HMOs) can be undertaken under two methods:
Which type of valuation is up to the lender, typically Buy to Let lenders will use a standard valuation, and commercial lenders may in some circumstances use a commercial assessment.
A general rule is if the property looks like or is a converted residential property – it will be on a standard valuation. If it is an ex-care home or other purpose-built or substantially not residential – the lender can value it on commercial terms.
There are some disadvantages - commercial terms often come at low loan-to-value and often higher rates. They may require the mortgage on repayment terms and other commercial contract obligations. Such as having life insurance.
There are some advantages - the property as a commercial entity can be valued higher based on the rental income generated by the business, rather than bricks and mortar valuation.
Most HMO Mortgage lenders base their valuation on bricks and mortar. Those that do offer it have varied conditions such as having C4 planning approved (not automatic C3 to C4 planning).
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