How do Mortgage Companies value an HMO?

How do Mortgage Companies value an HMO?

13:06 PM, 10th November 2016, About 6 years ago 6

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Can anyone advise how mortgage providers value a house for mortgage purposes? As an example take an HMO which would be valued at £300,000 as a single family home, based on similar properties in the area, and which cost £310,000 including renovations and alterations (with 6 rented rooms) bringing in a total of £36000 in rent per annum. Valuation

Would they value the house based on
A. It’s value as a single family home or,
B. It’s value as an investment if sold to a buy to let operator.

If a buy to let investor was looking for an 8% yield then £36,000 income a year equates to a purchase price of £450,000 (I realise that these are gross, not net, values but you get the idea – there is a large discrepancy between the two values, £300,000 and £450,000).

Any thoughts?



Neil Patterson View Profile

13:14 PM, 10th November 2016, About 6 years ago

Hi Mike,

Good question and it depends on the lender and their criteria.

There are two considerations here.

1. Value - Many lenders will look at this from the point of view of their risk and what would happen if they need to sell their security. Therefore many mainstream lenders will value based on open market selling as quickly as possible meaning a value as a single family home. A more commercial lender may take a view on this though.

2. Projected rental assessment - Some lenders will base the rental value on a single dwelling while more specialised BTL lenders will take the rental value based on multiple tenancies.

This is where using a specialist BTL broker comes in as they will know how all the lenders work and their criteria.

If you need one of our Brokers to help your with sourcing a mortgage you can always email me off line with your contact numbers

Graham Bowcock

13:42 PM, 10th November 2016, About 6 years ago

Dear Mike

This question comes up repeatedly and I can never resist adding my point of view. My firm values lots of HMO properties of all shapes and sizes so we have a lot of experience and I can certainly tell you there are no rules.

I did one on Friday which was pretty much a standard house but with fire doors and alarms. If the lender had to sell they would effectively have a vacant house, not necessarily a vacant HMO. However, as the local area has many HMO's the value was buoyed by sales of many other large houses (which have HMO potential or had been set up already) and also strong rents in the locality, way above what we would expect for an average family let AST.

I have also done some very large HMO's which have been very well set up by the owners and are a credit to the industry and it is clear that these have a value as an HMO; the difference with these though is that they do become a job for the owners over and above the investment so the yields reflect this.

We often come across investors who buy a regular three or four bedroom house, perhaps larger, and then seek funding for it as a HMO. The question has to be "what has happened to add value?". Why would a buyer pay significantly more for this house than the one next door?

There is no doubt that we attribute value to HMO's in many cases, but not all. My advice is that value is added not just by the necessary works but by operating in an established HMO area, getting a licence if one is required and making sure the property is operating as high up the market as possible. Tenants' demands are many and varied; most students expect decent wi-fi, perhaps cleaners, good security and a pleasant environment.

Good luck.

Michael Boxford

10:41 AM, 11th November 2016, About 6 years ago

Hi Graham

Thank you for your comments. As I suspected it is decided on a case by case basis probably depending on the quality of the HMO conversion and it's ongoing commercial viability decided by factors such as demand in that location.


Michael Boxford

10:43 AM, 11th November 2016, About 6 years ago

Reply to the comment left by "Neil Patterson" at "10/11/2016 - 13:14":

Hi Neil
Thanks for your comments. I can see that using a mortgage broker who knows suitable lenders will be key.

Howard Reuben CeMap CeRER

11:06 AM, 12th November 2016, About 6 years ago

Mortgage brokers have their place in the property ownership-funding-portfolio strategy cycle, not just because they are the most viable conduit for access to funders, but also because many of us are also landlords ourselves and with the right experience in the specialist lending market place we have the 'right' ears of the assessors and underwriters within the lending departments of high street banks, private client funders, pension funds, specialist challenger banks etc.

You can see my Firm's credentials here >

HMO's are deemed by the lenders to be 'complex BTLs' and the market is indeed different as far as the lenders - in fact many lenders will lend to BTL properties, and not to HMOs.

Our contact details can be viewed via my business member profile link above.

Hope that helps.

Michael Boxford

11:49 AM, 12th November 2016, About 6 years ago

Reply to the comment left by "Howard Reuben" at "12/11/2016 - 11:06":


We have spoken before when I found your comments to be very helpful and informative. I can see that it would be important to have access to insider knowledge of the lending market and who is likely to be amenable to a HMO proposal particularly if one is looking for a valuation above the single family home value.

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