Are you exploring ways to boost the value of your HMO investment? You’re not alone. More investors and lenders are turning towards commercial property valuation as a smarter alternative to the traditional bricks and mortar valuation, especially for high-yielding HMOs in the UK.
What Is a Bricks and Mortar Valuation?
A bricks and mortar valuation is the traditional method used by most valuers. It estimates a property’s value based on comparable sales in a specific postcode and current market conditions. This is what most homebuyers and sellers encounter during a sale or purchase.
What Is a Commercial Property Valuation?
In contrast, a commercial valuation calculates a property’s value based on its projected annual rental income. For HMO properties (Houses in Multiple Occupation)—especially those with six or more rooms—this method often results in a higher valuation than bricks and mortar, particularly in high-yield areas.
Why Investors Prefer Commercial Valuation for HMOs
The benefits of commercial valuation for landlords and investors are significant:
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Higher valuation = more equity.
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Increased borrowing power against the property.
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Better return on investment for refurbishments.
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More efficient financing, especially when scaling a portfolio.
We’ve helped many clients uncover hidden value in their properties simply by applying the right valuation method under the right circumstances.
A Real-World Example: Unlocking Value
Let’s say you purchase a property for £250,000, spend £15,000 on refurbishments, and convert it into a licensed 6-bed HMO. With each room renting for £550/month, the total gross rental income would be £3,300/month or £39,600/year.
Using this income, a conservative commercial valuation of £320,000 could be achievable. While commercial valuations typically cost more due to their specialist nature, the potential uplift in value often justifies the expense.
Key Factors That Influence a Commercial Valuation
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Article 4 Area Status
If the property is located within an Article 4 area, planning restrictions limit new HMO conversions—driving up demand and value for existing HMOs. Properties in these areas are highly sought after. -
Comparable Sales
Valuers will assess sold prices in the area over the past 12–24 months. If local comparables still hover around £250,000, they may be hesitant to support a significantly higher commercial valuation without strong rental data.
Lender Perspectives and Challenges
Even if the valuer recommends a commercial property valuation, lenders may still default to bricks and mortar for two key reasons:
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“Skin in the game”: Lenders want investors to have equity at risk. A high commercial valuation might mean you recoup all your capital—something some lenders are cautious about.
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Marketability: If a similar home down the street is worth £250,000, why would someone pay £320,000? Unless it’s in an Article 4 area, the open market may not support the commercial figure.
Still, some specialist lenders are open to using commercial valuations, especially when you present a strong business case and accept higher fees or rates.
Final Thoughts
Commercial property valuations are becoming a powerful tool for UK HMO investors, offering a strategic advantage—when used correctly. But they’re not a guaranteed win. Understanding your location, rental yield, and comparable data is essential.
If you’re considering this route and want to explore whether your next or current HMO qualifies for a commercial valuation, get in touch today. We’ll help you navigate the right path based on your unique goals.
In this blog, I look to detail more around the growing trend from investors and lenders alike who are more and more open to utilising a Commercial valuation as opposed to the ‘bricks and mortar’ valuation, under the right circumstances.
Just a quick recap, a bricks and mortar valuation is the one more utilised by valuers, ie. Given a particular property type in a particular post code the valuation would be estimated at x, given current market conditions. Something every house buyer and seller would have come of across.
A commercial valuation however looks to take the annual project rent received and give a valuation based on this figure. The growing trend then being that for larger HMO’s (usually 6 or more bedrooms but can be smaller dependant on the location) the likelihood is that the commercial valuation is going to come back at a higher value than that of a standard bricks and mortar value. Typically more so in the higher yielding properties.
Of course the benefits to landlords and investors alike means a greater uplift in value, making any work done far more cost effective and indeed should securing funds against the property be key, a higher amount can be sought.
Certainly over the past few years, with more and more clients we have tapped into this extra potential their properties may have, under the right circumstances.
So using the example above, you’ve bought a property and plan to rent this a 6 bed HMO and would look to use a commercial valuation to increase the value of the property and pulled further funds out. In theory all seems above board, you have the right licenses and building controls in place and the property is ready to be let as a 6 bed HMO.
You bought the property for £250,000.00, done some minor ‘tidy-up work at a cost of £15,000.00 and with a rent of £550.00 per month per room, feel a commercial valuation at very conservative £320,000.00 is achievable.
As mentioned above, being a 6 bed HMO, it would tick a lot of lenders boxes to be able to proceed on a Commercial Valuation and would progress as such – As a side note, Commercial Valuations typically cost more than the standard valuation owing to the specialist nature of this valuation type.
Usual points aside, there are two main areas a valuer would look at here, firstly is this in an article 4 area (something we would also discuss prior to purchasing the property) and also what ‘comparables’ are there that support the higher valuation figure.
The article 4 area discussion would be crucial before purchasing the property as this can restrict the use of a property as an HMO (conversely HMOs in article 4 areas are seen as extremely valuable!) for this purpose let’s assume the property isn’t and therefore any property in that area could be potentially be let as a HMO.
When looking at the ‘sold prices’ in the local area over the past 12 – 24 months, the sold prices come in and around the £250,000.00, some higher and some lower.
Given the above the likely outcome here then is that a valuer would give a Commercial Valuation, it’s what you paid for after all. However given the lack of comparable evidence to support the higher figure, it’s likely the valuer would recommend the bricks and mortar valuation, leaving you not where you aspired to be with that particular property.
You might ask, out of curiosity, what if the valuer recommended the commercial valuation, would that suffice?
Given the parametres above even if the valuer recommended the commercial valuation, the lender with its underwriting would most likely still use the bricks and mortar valuation for 2 reasons;
Firstly, lenders do like to see clients have ‘skin in the game’. Ie. Given the numbers here if they were to lend the full maximum it would mean that most, if not all, of your initial outlay would be recouped. From an investment perspective, that would seem like a sound investment however from a lenders point of view, in this scenario as least, over the years they have had their hands burnt in these scenarios would most likely cap the LTV for the first few years. We could potentially look at a 2nd charge in the background however this does become more costly.
The 2nd reason, perhaps this being a bit more common sense, is the general view that if this was to be put on the open market at the commercial valuation, why would someone buy the property at that value when they could just buy one on the same street for the £250,000.00, do the £15,000.00 work and then get the apparent uplift – Hence why properties in an Article 4 area are highly sought after!
Certainly a lot to consider and as I write this, despite the points made there are still lenders whom have a stronger track record using the commercial valuation, albeit at a premium.
If you are considering the above, get in touch and we can look to proceed in the manner best for your circumstances.”
