Mortgage guide
Hybrid valuation stands out as a specialist approach in the valuation of HMO properties, particularly useful in the context of HMO mortgages. This method differs significantly from the traditional “bricks and mortar” and “Market Value 1 (MV1)” valuations, offering unique advantages for small to medium-sized Houses in Multiple Occupation (HMOs) that are generally less than five or six rooms in size.
Hybrid valuation stands out as a specialist approach in the valuation of HMO properties, particularly useful in the context of HMO mortgages. This method differs significantly from the traditional “bricks and mortar” and “Market Value 1 (MV1)” valuations, offering unique advantages for small to medium-sized Houses in Multiple Occupation (HMOs) that are generally less than five or six rooms in size.
01
Feature Loadings: In hybrid valuation, additional value is attributed to features that enhance a property’s usability and appeal, such as ensuites, licensing status, kitchenettes, or secondary kitchens. These adjustments are crucial for properties within the HMO mortgage sector, where such amenities can significantly enhance tenant satisfaction and property desirability.
02
Target Properties: This valuation method is particularly apt for HMOs that are not very large but have been optimized to maximize space and tenant comfort. Properties fitting this description are often targeted in the HMO mortgage market, as they offer a balance between affordability and quality living spaces for tenants.
03
Exclusion of Yield: Hybrid valuations are performed assuming the property is vacant, which is referred to as a Vacant Possession (VP) basis. This means that the valuation does not consider any existing or potential rental income, focusing solely on the property’s physical attributes and marketability without tenants. This aspect is critical to understand, as it separates the hybrid valuation from investment valuations, where the income potential significantly impacts the property’s assessed value.
In conclusion, the hybrid valuation method is a crucial tool in the arsenal for assessing properties under HMO mortgages, especially when dealing with small to medium-sized HMOs. It offers a detailed appraisal of the property’s enhanced features but requires careful consideration of its non-inclusion of rental yields, ensuring that all aspects of property valuation are thoroughly understood and appropriately applied, borrowers looking for a yield based valuation can find information on this in our Market Value 1 (MV1) commercial mortgage section below.
When employing the Buy, Refurbish, Refinance (BRR) strategy for converting a property into a House in Multiple Occupation (HMO), re-mortgaging using a hybrid valuation immediately after the refurbishment, often referred to as a “Day One re-mortgage”, can be a feasible strategy. However, executing this effectively involves meeting specific regulatory and valuation requirements, particularly under the conditions of an HMO mortgage.
For context, these are the wider product terms covered by this guide. Availability and eligibility depend on your circumstances and the lender.
| Criteria | Detail |
|---|---|
| Borrowers | Personal, Ltd co, LLP, Offshore Trusts |
| Repayment type | Interest only, repayment |
| Term | Up to 40 years |
| Experience | Not required |
| Max applicants | 6 |
| Valuations available | Market value 1 (MV1) Commercial valuation (yield based), Hybrid, or bricks and mortar. |
| Max rooms | None |
| Tenant types | Students, professionals, social housing, DSS |
| Locations | England, Wales, Scotland & Northern Ireland |
For context, these are the wider product terms covered by this guide. Availability and eligibility depend on your circumstances and the lender.
| Product | Rate and fees |
|---|---|
| Personal name 75% LTV- 2 year fixed | 4.58% (£1,295 product fee, £230 valuation) |
| Personal name, 75% LTV, 5 year fixed | 4.05% with a (£1295 product fee, free valuation) |
| Limited Company, 75% LTV, 2 year fixed | 3.02% (5% product fee) |
| Limited Company, 75% LTV, 5 year fixed | 4.75% (4% product fee, free valuation) |
A hybrid valuation is used for properties adapted to HMO use but without full commercial characteristics. It blends a bricks-and-mortar valuation with an assessment of the property's income-generating potential.
A hybrid valuation is often described as an investment valuation, but it is not a yield-based method. It combines comparable evidence with an uplift for HMO adaptation, produced on a Vacant Possession basis. Distinct from a true MV1 yield valuation.
An MV1 valuation assesses the HMO as an income-producing investment asset on a yield basis, considering gross rent, sustainable income, market yield, and investor demand. A hybrid valuation starts from the bricks and mortar value and applies a modest uplift for HMO use, and is not a yield-based valuation.
Yes. Lender-instructed valuations are carried out by RICS-registered valuers, who are bound by RICS standards and ethical codes.
HMO mortgage valuation fees scale with the property and the valuation route rather than following a single tariff. Comparable valuations on small House in Multiple Occupation (HMO) properties price like standard buy to let surveys, while income-led MV1 reports from commercial valuers cost materially more. Each lender publishes its own fee scale at application.
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