In this weeks’ blog, Ellie is looking at HMO valuations and a case study for a four bedroom HMO conversion.

Many of our clients ask about valuations for HMO’s, and how they can maximise this on a refurbishment project. Clients are looking to pull as much money out of each deal as they can in order to move on to the next one with as much money as possible.

This is always a tricky question to answer, as it is not me completing the valuation! There are a few ways lenders value HMO’s, so here is a simple explanation for them all:

Bricks and Mortar Valuation

Most lenders will value a HMO as an empty house and assume that if they were to repossess it they would sell it on to a family (regardless of how much you have changed the layout). In order to achieve more than this, you would need to work with a couple of specific lenders who have other options. In all instances properties that retain the same layout as a house will be valued on a bricks and mortar basis; for example where the only change has been converting a lounge into a bedroom and perhaps adding an en-suite.

Commercial or Investment Valuation

This is where a property is valued on its yield. The lender will usually use a net market rent, so not necessarily what you are achieving for the property and the average yield you would expect to receive as an investor in the local area. They would pull these figures from local comparable properties. Most commercial or specialist lenders will use this method where the property has Sui Genaris planning, and some will also use it where Article 4 applies. There are a couple of lenders in the market that will also consider this where you have a larger HMO and C4 planning where the internal layout has been significantly changed, so that it would be more likely to be resold as a HMO rather than a house. There would also need to be a good demand for both room rentals and resale of an HMO.

HMO Hybrid Valuation

This is the tricky middle ground! There are a couple of lenders in the market that offer hybrid valuations for HMO’s with C4 usage. It is up to the surveyor to decide whether the internal layout is significantly different to a house, and whether it would sell as an HMO or as a house. This would typically be where the property is configured so that the bedrooms are doubles with en-suite, the kitchen is set up to cater for large number of people using it (multiple cookers, sinks etc) and the living space is comparatively small. The surveyor would then value it either as a house (bricks and mortar), investment, or a mixture of the two. This is where they take the purchase price of the property (or market value where is has been purchased under value) and add the cost of the conversion. This is based on an average cost so may not be quite as much money as you have spent.


Here is an example of a case we had recently, where our clients Maygreen Investments, bought a property to convert into a four bedroom HMO with en-suites. This shows that not only is an uplift possible on larger 5 and 6 bedroom properties, we can get it on a 4 bedroom property too, if the finish and location are right


Maygreen Investments, bought the property for £102,500 last August. They spent £45,000 on a full refurbishment on the property, including en-suites to all rooms and you can see from the pictures that is has been completed to a very high standard finish.


We had a few valuations completed once the property was finished and this came in at £159,000, which is a good uplift on the bricks and mortar value of the property. We have just completed the refinance and have lent the client 75% on the new value, as there is sufficient rental income to cover this.


As always, if you have any deals you would like to discuss, please give us a call!

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