As many of our readers will testify to, the world of commercial finance – and more specifically HMO finance – can be a bit of a hit and miss affair. We have heard many reports of surveyors ‘down-valuing’ properties or using arbitrary or spurious reasons for their valuations. Another issue we have heard of, is surveyors making unsupported statements regarding demand for rooms in a particular area, again without citing any solid evidence. It is very difficult to challenge a surveyor’s report or a lender when they refuse to lend, and this can be a major hassle for landlord-investors.
Firstly, a bit more background and detail on the issues that HMO investors are experiencing. Up and down the country HMO-oriented social media forums are alight with various examples of irrational statements and disappointing reports issued by surveyors. We are hearing reports too from the investors we speak to. It’s not just ‘down valuing’; it’s a whole range of spurious statements and conflicting messages coming from surveyors and also lenders, leading to either an unexplained or poorly justified valuation of the HMO, but often a downright refusal to lend with no understandable reason given.
Here are just a few examples:
- Lack of transparency or rational for using a bricks and mortar valuation instead of a commercial valuation.
- Lack of consistency between different surveyors valuing very similar or even identical HMOs in the same location.
- Surveyors recommending a valuation that seems to make sense based on comparables, but the lender declining to lend (despite having issued a positive decision in principle).
- Surveyors not listing comparables then refusing to share what comparables they have used when arriving at their valuations.
Obtaining a positive final valuation of an HMO after conversion, or when refinancing an up and running HMO, is a critical part of the process for the investor. It can make the difference between financial success or failure. So, what is going on?
Unfortunately, we do not have a solution or ‘magic wand’ approach to this issue – we have had similar experiences several times over the years with our own HMOs or mixed-use buildings. We would however encourage our readers to consider the following as they approach their HMO projects:
- Whilst surveyors are ‘independent’, if contracted by a lender as part of a mortgage application, then they are very much working for the lender and not the borrower/developer.
- In the world of commercial finance, lenders will very much take arbitrary decisions, or apply illogical rational and processes to cut down the volume of their applications – i.e. to reduce their lending volumes. This is relevant to any stage of the process. The surveyor of course is aware of this. So, it may seem an irrational approach by both parties but there is a logic.
- The inability to get a commercial-level valuation on an HMO is often a disappointment. Remember however, it will be very difficult for a surveyor to view a property as a commercial entity rather than a residential property, when there are numerous vanilla residential properties in the same street that have the same basic layout as your HMO. Often, it is necessary to add footprint to your HMO to separate it from the herd of local residential comparables.
- Finally, remember if at all possible, to meet with the surveyor at the property and be on hand to answer their questions and provide additional data.
Good luck and please get in touch if you have any questions regarding property investment and HMOs in particular.
