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HMO Property: Financing and Valuations

Richard Bowser looks at how lenders approach the valuation of Houses of Multiple Occupation (HMO) property

As the UK economy continues to recover with regional housing markets gradually gaining momentum, the continuing shortage of new homes being built could prove to be a 'hot potato' for the upcoming UK parliamentary election in 2015. In major cities and towns in particular the curtailed supply of accommodation relative to increasing demand has resulted in many new opportunities for property investor-landlords to supply 'room lets' as our article on page 20 underlines.

However, the financing of HMO property is not always as straightforward as for 'vanilla' buy-to-lets which are occupied by one family unit, so I asked Lucy Hodge, managing director at Vantage Finance and Mark Heywood, senior commercial manager at Watts Commercial Finance to clarify how larger HMO properties are looked upon by lenders.

According to Lucy Hodge HMOs are difficult to place with high street lenders as it is a specialist sector which the vast majority of buy-to-let (BTL) lenders pulled out of during the financial crisis, and still have not returned to.

She continues: "Whilst HMOs can be funded as commercial mortgages with high street lenders, the criteria for loans to be written on a repayment basis with fairly tough rental cover requirements does not suit many investors. They tend to be looking for interest-only loans with gearing at a higher level than can be achieved through this model. 

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