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Why HMO’s don’t value up at 10 x income

I can see people are puzzled as to why HMO’s aren’t valued as a simple multiple of income by commercial lenders when commercial properties usually are.

I would suggest it is because there are some fundamental differences between the two…


  1. leases are long, up to 20 years
  2. lenders take comfort from the lease providing an increased likelihood that the loan will continue to be serviced
  3. leases are often fully repairing, meaning the tenant is responsible for the upkeep
  4. leases have built in break clauses and rent reviews
  5. the value of the property reduces considerably when vacant, in some cases by 50%
  6. the property has a designated commercial usage with the local council i.e. A1, C1
  7. the property cannot be used for a domestic dwelling if not occupied by a commercial tenant
  8. commercial tenants runs a business of whatever sort and can therefore be viewed as generally more financially aware


  1. leases are rarely longer than 12 month AST’s
  2. sometimes licences are used, rather than a lease
  3. AST’s give lenders less comfort in continued serviceability of the loan
  4. the landlord is always responsible for the upkeep
  5. the value of the property remains largely stable whether tenanted or vacant
  6. the property has domestic dwelling status with the local council
  7. the property can always revert to a single AST or a main res home
  8. HMO’s tenants can often be quite financially naive

The main reason commercial properties are valued on a multiple of income and HMO’s aren’t is that they are fundamentally different properties, as highlighted above

Further, any lender will always have an eye on the worst case scenario and how they will recoup their loan in that event. If they have to repossess the property, they will want to ensure that it can be quickly put out in an auction and the price it sells for at auction will recoup their loan. Thus 70% is the usual max ltv offered on commercial to provide that safety net.

Take an example of a property with an OMV of £300,000 that has been bought BMV for £200,000. Then converted into an HMO with a rental income of £40,000 pa

Using the 10 x income theory, its market value should be £400,000; therefore a commercial lender should be willing to lend 70% – £280,000

However, strip away the HMO element, as would be the case in a repossession and it reasonable to assume that a lender would be concerned about their ability to sell at auction for £280,000, when the OMV is closer to £300,000.

Surveyors will often make an allowance for the additional rental income an HMO produces. Values often seem to come somewhere between bricks and mortar and 10 x income values. As always a lender will interpret a valuation to protect its own position.

There is one strategy that, while it doesn’t guarantee a successful outcome can mitigate the risks in your favour.

  • Before you purchase obtain a list of your intended lender’s surveyor panel
  • Pick one of the surveyors and pay them to do a survey on your proposed purchase
  • Accompany the surveyor on the survey
  • Provide them with a detailed work schedule of the improvements you intend to make
  • Provide them with a breakdown of the proposed rental income, room by room
  • If you can, provide them with comparable values of recently sold HMO’s within the last 6 months in adjacent streets. This might prove to be the most challenging of your submissions to the surveyor but will strengthening your uplift potential if you are able to find some.
  • You will receive a report that gives both the current value of the property as it stands, plus the uplifted value once you have converted it into a multi-let, be that a licenced or un-licenced HMO

This does not guarantee that you will get a lender to give you the loan that you seek but it will do two things.

  1. Before you commit to purchasing a property you will have a clear understanding, from a qualified professional, of the value it will attain as an HMO. If that valuation shows an unfavourably small uplift in value, you can decide to abort the purchase before sinking thousands of pounds of your own cash into the property then finding that there is no way to get it back out again. You may have ‘wasted’ a few hundred pounds on a property that you actually don’t purchase but this can be balanced by saving yourself from locking up tens of thousands of pounds in a property that cannot be adequately refinanced
  2. When you submit your application to the chosen HMO lender, your broker can submit your valuation, from a surveyor on the lender’s panel, to support your application. Now the lender may still choose to get (and for you to pay for) an alternative valuation from a different surveyor on their panel but it is about mitigating the risk of not achieving the uplift in valuation that you need

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