What’s involved in valuing an HMO – Arnold

by: Joe Arnold, managing director of Arnold & Baldwin
  • 07/08/2018
  • 0
What’s involved in valuing an HMO – Arnold
Just as specialist mortgages require an individual approach to underwriting, carrying out a valuation on a specialist property, like a house in multiple occupation (HMO), needs specific expertise. So, how does valuing an HMO differ to a more vanilla property?

 

We have seen an increase in demand for the valuation of HMOs, particularly in London where yields are tight and landlords are looking at ways of driving more income through their property.

HMOs have traditionally been considered as commercial lending on a residential property, but as more specialist lenders have created dedicated products, HMOs have become a specific asset class.

This has created more traction and, as it is now easier to fund the purchase of an HMO, greater demand.

Whereas lenders will take a factory-line approach to valuing more standard properties, an HMO requires a specialist valuation.

 

Fewer comparables, more complexity

With a valuation of an HMO, there are more things to consider and fewer comparables than a more standard property.

A key element of the valuation is the achievable rental income and yield of the HMO and so a surveyor will consider the location and potential to sustain regular letting of individual rooms.

This means thinking about whether the property is near a transport hub, university or hospital and the realistic rental price for each of the rooms.

A surveyor should also check against the local authority Article 4 direction to ensure that the HMO does not contravene any local planning regulations and that the property can be let on a room by room basis.

 

Licencing and room sizes

From 1 October, a licence will be needed for HMOs occupied by five or more people from two or more households, regardless of the number of storeys.

The government is also introducing minimum room sizes for bedrooms in licenced HMOs.

Currently some local authorities prescribe minimum room sizes, while others set out advisory standards, and this new approach will dispel confusion with a standard approach to all licenced HMOs.

From 1 October the minimum room sizes will be:

  • Single bedroom to be used by one person over 10 years should not be less than 6.51 square metres.
  • Double bedroom to be used by two people over 10 years should not be less than 10.22 square metres.
  • Single bedroom to be used by one person under 10 years should not be less than 4.64 square metres.

 

In addition to considering regulation, local authority requirements and the Royal Institute of Chartered Surveyors (RICS) Red Book guidelines, a surveyor also needs to be cognisant of the specific criteria of the lender that is involved in the case, as different lenders will have their own guidance notes.

It is this layering of multiple considerations that makes carrying out a valuation on an HMO a much more complex process than a standard property, and this is why lenders will look for a specialist valuation before they will agree to a loan.

 

 

There are 0 Comment(s)

You may also be interested in

Bridging

Keep up-to-date with all the breaking bridging and short-term lending news and analysis, from regulatory changes to product innovation and inside market knowledge. Take a look at our broker and lender case studies showing short-term finance in practice.

Commercial

Find all the news, opinion and analysis for property finance brokers specialising in commercial and semi-commercial mortgages, alternative and development finance for commercial investments in residential projects.

Second charge

Stay up-to-date with the latest news, analysis and opinion on the secured loan market as it evolves into a mainstream finance option following European regulation on 21 March 2016.

Complex buy-to-let

Whether it’s a complicated asset or a complex customer, you’ll find out all the breaking buy-to-let news in this section. From limited companies to portfolio landlords, student lets to a House in Multiple Occupation, we’ve got all bases covered with our up-to-the-minute news, analysis and opinion.

Mortgage Solutions

Find all the breaking news, analysis and industry comment on Specialist Lending Solutions' sister site, Mortgage Solutions
Read previous post:
Jane Simpson
Dominance of five-year fixes will trigger buy-to-let market contraction – TBMC

The surge of landlords taking-up five-year fixed rate mortgages will see the buy-to-let mortgage market contract over the next three...

Close