Large HMO mortgage
We provide solutions for Large HMO mortgages, using bespoke products with market leading rates and investment valuation methods. In this guide we will explain how most buy to let and HMO mortgage products are unsuitable for Large HMO properties and that they require specialist mortgage lending, sometimes to achieve approval in relation to experience, tenant type of valuation method required. In our guide below we will explain mortgage criteria impacting borrowers lending against large HMO properties as well as the differences in valuation methods offered.
Large HMO Mortgage Valuations
A common misconception with HMO mortgages in general is that people assume all HMO mortgages provide investment valuations, this is actually not true.
HMO mortgage products are not all designed for sui generis HMO’s which are classified as such when they have 7 or more units. Most HMO mortgages will use residential valuation methods, which value based on sale comparable, within 6 months, within a quarter mile. This leaves room for valuations to be returned lower than expected, which can be a non-starter for HMO developers that have gone to such trouble to turn the property in to a luxury HMO.
Below we will explain how yield based valuations, otherwise known as MV1 (Market Value 1) valuations are key, to HMOs larger than 7 rooms, where there has been a luxury spend and borrowers are looking to maximise their mortgage loan size.
Hybrid valuations | Large HMO mortgages
Hybrid valuations are a blended valuation, between residential and commercial valuation methods. They are usually provided on a vacant possession value and are therefore, not a yield based method.
In the mortgage world they are known as investment valuations, as they do carry some uplift for properties that have been adapted significantly to be used as a HMO and are given an additional loading for that adaption and planning permission, if applicable.
Whilst hybrid valuations are generally not recommended on Large HMO Mortgages, they can be suitable in the following instances:
- Low gearing mortgage: Borrowers that intend to gear low, may not need to maximise their valuation, therefore standard HMO products may be suitable and could give enough loan size. These standard products come with a lower cost of borrowing than commercial lenders so it can be a win for conservative HMO mortgage borrowers.
- No experience: Borrowers without experience will struggle to get commercial lending on a large HMO, unless they have an income of (50k+) and therefore a standard HMO mortgage may be used as an experience vehicle.
Commercial valuations | Large HMO mortgages
Large HMO properties are much better suited to commercial lending especially where borrowers are looking to recycle their funds after a luxury refurbishment, or for Large HMO buyers where they are paying investment prices for these properties.
Market Value 1 (MV1) Valuations
We provide solutions to borrowers looking to buy large HMOs, making sure they get the property valued for at least what they are paying for it.
MV1 valuations are commercial valuation methods, usually used in commercial property to value a business on an investment basis. Many property investors assume that this valuation comes with all HMO products, but the truth is, HMO valuations are a complex area that require specialist advice.
MV1 valuations will use a yield basis which is most appropriate for large HMOs that achieve good rents. With HMOs in major cities, having a luxury design will mean that you will achieve top rent on the property and therefore, with a yield based valuation, you will get the best chance of achieving a valuation that you hoped for.
LARGE HMO MORTGAGE | QUESTIONS
Large HMO mortgages
We assist with HMO mortgage of up to 50 rooms, below are a guide on some of the HMOs we see and are able to offer mortgage solutions for.
- 6 Bed HMO mortgage
- 7 Bed HMO mortgage
- 10 Bed HMO mortgage
- Up to 50 bed HMO mortgage
No.
Whilst you will not need experience for a large HMO mortgage, it is key to remember that in order to go to a commercial lender offering you with a MV1 valuation, you will need good experience, or a minimum income of £50,000.
Without this, you could be looking at mortgage lending against a bricks and mortar valuation which could impact your exit.
It is challenging for first-time landlords to obtain a large HMO mortgage due to the complex nature of managing larger HMO properties. Lenders typically prefer applicants with prior experience in property investment and management. However, some lenders may consider first-time landlords if they partner with experienced property managers or meet other stringent criteria.
Common fees associated with a large HMO mortgage include arrangement fees, valuation fees, legal fees, and sometimes higher lending charges. It’s important to factor in these costs when calculating the total expense of obtaining a large HMO mortgage.
Documentation required for a large HMO mortgage typically includes proof of income, bank statements, credit reports, a detailed property management plan, a property valuation report, and evidence of rental income potential. Additional documents may be requested based on the lender’s specific requirements.
Large HMO mortgages tend to be with Commercial lenders, who do charge slightly more in interest rates when comparing to standard HMO mortgage options. But there products usually come with more value for a large HMO property owner, which included better valuation methods.
Valuation costs will depend on the area, with Large HMO mortgages, usually you will need a commercial valuation which can be more expensive than a standard valuation. Aside from that valuers will base their fees on value and area, therefore it is key to get quotes before committing to purchases.
The amount you can borrow with a large HMO mortgage depends on several factors, including the property’s value, projected rental income, your financial stability, and the lender’s policies. Typically, lenders offer loans up to 75% of the property’s value.
The approval process for a large HMO mortgage can take several weeks to a few months, depending on the complexity of the application, the efficiency of the lender, and the completeness of your documentation. It’s advisable to start the application process well in advance of your intended purchase date.
Yes, you can refinance an existing property with a large HMO mortgage. Refinancing can be a strategic way to lower your interest rate, access equity, or change the terms of your loan to better suit your investment goals. Ensure that you meet the lender’s criteria and provide the necessary documentation for the refinancing process.