HMO | Searchlight Finance

HMO Valuations

No, it’s not rent x 10 to value an HMO and lenders don’t decide the value of a property. These are the two most common questions we get asked. There is so much incorrect information on this subject and this post will tell you how it is.

Firstly 75% of lenders will only lend against bricks and mortar on a small HMO (up to 6 beds) and the other 25% can have restrictions on how much they will lend on a newly converted HMO. Yes, some properties are valued at 10 x rent but we’ve seen as low as 5 and as high as 14. Lending against rent is often called a commercial valuation.

If you can buy 24 Sherwood Close for £150,000 which is a 4 bed detached, spend £15k on conversion costs to make a 6 bed HMO, what is it worth? Each room will rent at £95 per week so annual rent is £29,640.

Some will say it’s now worth 10 x rent which is £296,000. If a potential buyer can buy no 22 for the same price and get a new HMO for £131,000 less why would you buy no 24 at a figure way above bricks and mortar?

Lenders will instruct their valuer to value on a vacant possession (VP) value which is bricks and mortar and/or Market Value which is based on yield linked to a multiplier of rent.

The valuer will analyse the gross rent and make deductions for repairs and management. They then capitalise the net rent to obtain a capital value figure and compare with other residential properties and comparables in the locality.

There are four ways that valuers look at HMOs if the lender accepts this type of valuation.

A standard house

The property can be used on a multi-let basis (another word which lenders use for a small HMO) and any works to convert are minimal. When empty the property can be used as a single let.

The property can be used on a multi-let basis but the works to convert are minimal. A buyer is likely to purchase a similar property and convert than pay a premium. It will always be valued on a bricks and mortar basis. Some lenders will lend off the total rent by room and others will base the loan on the single let rent.

Reconfigured and no longer a standard house

There is no Article 4 in the area and there is no planning in place. The building has had a significant change to be used as an HMO and it cannot be used as a single let.

No Article 4 in the area and no planning in place. Other units in the area are sold as private dwellings. The building has been significantly altered and can no longer be sold as a private dwelling. If there is a demand for an HMO and there are comparables then the lender may work off Market Value.

Article 4 is in place

Up to 6 beds. Article 4 is in place so there is a barrier to new HMOs. The valuer will consider comparables and rents and will be valued on market value.

Planning in place (Sui Generis ) to be used as a large HMO.

Over 6 beds. Sui Generis (class of its own) planning in place. The valuer will consider comparables and again base on market value.

Expert Buy-to-Let Advice for Serious Investors

Whether you’re expanding into HMO or you are an established property investor in the sector we’ll find the right HMO mortgage for your strategy.

Our team works with specialist lenders across the UK to secure funding quickly and efficiently — so you can focus on building long-term income and capital growth.

📞 Call us on 01565 654005
📧 Email us today to discuss your buy-to-let mortgage options.

Unlocking the Benefits of a Successful HMO Refurbishment

HMO (House in Multiple Occupation) properties can be a great investment for landlords looking to obtain a higher yielding rental income. However, over time, these properties can become tired and in need of a refurbishment.

A well-planned and executed refurbishment can not only improve the living conditions for tenants, but it can also increase the property’s value and rental potential.

The Benefits of Refurbishing a HMO Property

Increased rental income: A refurbished property is likely to command higher rental prices than a tired, outdated property.
Attracting higher-quality tenants: A refurbished property is more likely to appeal to professional, reliable tenants who will take care of the property.
Increased property value: A refurbished property is more likely to hold its value, and may even increase in value over time.
Improved living conditions for tenants: A refurbishment can improve the living conditions for tenants, making the property a more pleasant place to live.

Key Considerations for a Successful HMO Refurbishment

Planning permission: Depending on the extent of the refurbishment, planning permission may be required. It’s important to check with your local council before starting work.
Health and safety regulations: It’s important to ensure that the refurbishment complies with all relevant health and safety regulations to protect tenants and contractors.
Building regulations: The refurbishment must comply with all relevant building regulations to ensure the safety and structural integrity of the property.
Budget: It’s important to have a clear budget in place to ensure that the refurbishment is completed within financial constraints.

The Refurbishment Process

Assessing the property: Before starting the refurbishment, it’s important to assess the property to identify any issues that need to be addressed.
Designing the refurbishment: Once the issues have been identified, the next step is to design the refurbishment to address these issues.
Obtaining quotes: Once the design has been finalised, it’s important to obtain quotes from contractors to ensure that the refurbishment is completed within budget.
Completing the refurbishment: Once the quotes have been obtained, the refurbishment can begin. It’s important to regularly check on the progress of the work to ensure that it is completed on time and to a high standard.

Finance Options for Your Refurbishment

If the refurbishment is going to take more than a month, there is structural work or you are changing the planning usage of the property it is highly likely you will need to tell any existing lender in advance what your plans are.

The lender may allow the work or they may tell you to get finance from elsewhere and repay your current mortgage.

You could either go down bridging finance route, a bridge to let or even a light refurbishment buy to let.

There are many options depending on the work and how long it will take.

Conclusion:

Refurbishing a HMO property can bring many benefits, including increased rental income, attracting higher-quality tenants, and improved living conditions for tenants.

However, it’s important to carefully consider key factors such as the right type of finance, planning permission, health and safety regulations, building regulations, and budget to ensure a successful refurbishment.

By following a clear process, landlords can create a property that is both valuable and appealing to tenants.

To find out what your options are please contact us.

HMO Mortgage – First Time Landlord

The Issue – A first-time landlord with a 7 bed HMO was told by a specialist HMO broker they were not mortgageable due to lack of experience. They had a property worth £400,000 which they wanted to remortgage at 75% LTV after an extensive refurbishment. They were concerned they would have to wait two years before they could release the money they had in the property.

The Solution – We have access to a lender who will do HMO mortgages up to 8 beds for a new landlord at competitive rates. The previous broker thought their maximum was 6, so through our knowledge, we now have a new client and happy landlord who has now moved onto her next property.

Not rocket science but by understanding the market we know where to go and how to ask the right questions.

BTL Mortgages for Professional Landlords

One of our BTL lenders for professional landlords:

Up to 80% LTV
Standard and specialist buy-to-let products for all types of landlord (including limited companies)
Single residential units, HMOs and multi freeholds
Choice of competitive fixed and variable rates
No portfolio limits
Maximum age 85 at end of mortgage term (79 at start of the term)
No minimum income required for experienced landlords
Capital raising to 80% LTV, to fund portfolio expansion
New build and ex-public sector houses accepted

These products are unregulated BTL mortgages and are subject to you and the property meeting their criteria. Please contact us to discuss your requirements.

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