hmo property investment UKThere has been sharp rise in the number of formal complaints from landlords and investors complaining about the valuation they have received for their HMOs, (both licensed and unlicensed) according to The Mistoria Group.

The complaints centre around valuers’ property valuations and the fees they charge. Very often, landlords and investors have found the valuations are up to £50,000 below market value and do not take into account the rental income or the extensive works carried out on the property.

Instead, valuers give the property a valuation based on sales comparisons on the same road, or based on rental income for a family of four, aka a buy-to-let property, which is substantially lower than the income generated by an HMO; they fail to take into account any major refurbishment to the property which has increased its market value; and they value it based on a property that is a similar size, but is not of the same quality and standard.

All too often, valuers and lenders also mislead HMO landlords and investors, giving them the impression that the valuation will be a HMO based valuation and charge extra fee for it. HMO valuations are almost three times the cost of a buy to let valuation which landlords and investors have paid, only to find that they were given a standard buy-to-let valuation based on a forced sale basis or a comparisons based on sales.

Mish Liyanage, Managing Director of The Mistoria Group comments:

“This is a big problem in the market and needs to be addressed. In the recent past, we have challenged these valuations and lodged complaints to both the lenders and valuers with little success. The comparisons we have provided on a like for like HMO sales have been totally ignored. We believe this is not just a one-off problem, rather it is a wide-spread, growing problem. Valuers and HMO lenders need to be honest and upfront about what type of valuation they are doing and what rental income they are taking into account.

Valuers should also stop charging for HMO valuations, when in reality they are carrying out standard buy-to-let valuations on unlicensed HMOs which are typical 3–5 beds. There seems be a big gap in the market for a lender who understands the differences between these two; who provides a valuation based on the net rental income; and who takes into account the extensive amount of works carried out on a property.

A recent case brings to life the problem facing HMO investors. A valuer was asked to look at value of a 4 bed house share. The HMO valuation was £80,000 and it failed to take into account any consideration of HMO sales comparables, which were provided. These included 4 bed HMOs in the area that sold in excess of £130,000 during the previous 12 months. The valuer was paid £700 for the HMO valuation.

Subsequently, another group of valuers gave a buy-to-let valuation of £90,000 on the same property, for which the charge was £170. So this begs the question – how can an HMO valuation be less than a buy-to-let valuation and why are HMO valuations so expensive?”

This article appeared in Mortgage Introducer on 17th July 2014