Myth 1: I have an HMO licence so I do not need planning permission
This is not true. An HMO licence does not automatically mean that you have planning permission – they are not the same. Some investors do not realise that they are separate and that they need both. They are both local council departments, but different and need to be applied for separately. Most often investors get an HMO licence but neglect to obtain the correct planning permission and is very hard to get planning permission retrospectively.
Also, it is only by getting both parts that investors can obtain a commercial investment valuation and see the uplift in property value at the end of the works. This is critical for investors moving from a short-term loan onto an appropriate term loan to maximise their investment.
Myth 2: My small HMO will automatically be valued on and investment or “commercial basis”
If your HMO has six bedrooms or fewer, there are two type of valuation available:
• Bricks and mortar valuation: The value of the property as a single residential property
• Investment basis or “commercial” valuation: Valuing the property as an ongoing business based on rentals
Some investors believe commercial valuations are the norm and they tend to want their properties valued on an investment value basis, believing this will result in a higher valuation. However, it does not always happen like this. It is more common for lenders to value HMOs on a bricks and mortar basis. The reason for this is that an HMO must have had significant works done to be worth the premium HMO price. If an investor could buy a single residential property next door and easily do the works themselves, then why should they pay a higher price for an HMO?
Moreover, some lenders will not lend on an investment basis because it is more of a risk for them. This is because if the lender needs to take possession and sell the property, they might get a lower bricks and mortar offer than the commercial valuation if the property has been neglected. Some lenders will only lend on a bricks and mortar basis, but for that, the investor will receive a better rate.
Myth 3: I do not have property investing experience, so I will not be able to get an HMO.
While this may have traditionally been true, we have a solution for you. Game Changer is an all-in-one package that means if you have no previous experience with Houses of Multiple Occupancy (HMOs) or have funds but no spare time, you can become the owner of a newly converted, financed HMO.
The Game Changer process means that you can secure an initial bridging loan or use your own funds for an HMO conversion project, have an expert develop and manage a property for you, and then secure a term HMO mortgage at the end to exit. Find out more about our Game Changer offering.