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).
The commercial surveyor will take a view on the value of the property as an ongoing business. Instead of valuing the property as if a homeowner would buy it, it's valued as if an HMO Investor acquires it.
The surveyor thus will take a view on a multiple of the income the property can generate. Though they will always be mindful of the Residential Buildings Valuation.
Not all HMO Mortgage Lenders offer commercial valuations. Those that do stipulate when they should be used.
You can ask your Mortgage Adviser to recommend a Lender that allows Commercial HMO Lenders. This will reduce the availability of HMO Mortgages and may mean higher mortgage rates.
HMO Valuations are not available in all circumstances. Lenders may restrict it to Large HMO's or those with certain planning consent.
Obtaining a mortgage with a Commercial HMO Valuation will mean higher costs. These include higher valuation costs and legal fees compared to standard HMO's.
Few lenders off this, reducing product selection and availability with reduced criteria variation.
The mortgage products are often worse with Higher Rates and Higher Arrangement fees.
Those lenders offering Commercial HMO Valuations offer lower loan to value. Compared to standard HMO Mortgages that can go up to 85% LTV.
Commercial Lending is often on repayment terms with few Interest Only Offerings.
The advantage of Commercial Valuation is known to most property investors. 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.
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