Hybrid HMO Valuation on a 5-Bed Property

Our client came to us with a 5-bed HMO in an Article 4 area, disappointed after another broker had secured only a bricks-and-mortar valuation — and didn't seem aware that a hybrid valuation was even possible. This case study explains how we secured a hybrid valuation on a property that would typically only qualify for a standard approach, and what that meant for the client's ability to recycle capital.

The Challenge

The client owned a 5-bed HMO in an area covered by Article 4 direction, meaning planning permission was required for HMO use. They had previously worked with another broker who had only managed to secure a bricks-and-mortar valuation — a standard residential valuation that does not take into account the property's rental income.

Typically, commercial-style or hybrid valuations are reserved for HMOs with 6 or more bedrooms. The client had been told that a hybrid valuation was not possible on a 5-bed property, limiting the amount they could borrow against the asset.

What the Client Needed

• A valuation approach that reflected the property's income-generating potential, not just its bricks-and-mortar value
• The ability to release more capital from the property to reinvest in future projects
• A lender and valuer willing to consider a hybrid approach on a 5-bed HMO

Our Approach

After reviewing the asset, the layout, and the income profile, we took the following steps:

1. Asset review — We assessed whether the property's characteristics supported a case for a hybrid valuation, looking at room sizes, income, and the Article 4 status that confirmed its established HMO use.
2. Lender selection — We identified a lender willing to instruct a hybrid valuation on a 5-bed property, rather than defaulting to a standard bricks-and-mortar approach. Not all lenders offer this option, so knowing which ones do is essential.
3. Presenting the case — We provided the lender and valuer with a clear picture of the property's income profile and its position within the local market, supporting the case for a valuation methodology that reflected its true earning potential.

Key Considerations

If you own an HMO and are considering how it should be valued, here are some important points:

• Bricks-and-mortar vs hybrid valuations — A bricks-and-mortar valuation assesses the property as a standard residential dwelling. A hybrid valuation blends the residential value with the property's income potential, often resulting in a higher figure for well-performing HMOs.
• The 6-bed threshold is not absolute — While many lenders and valuers default to commercial-style valuations only for 6+ bed HMOs, there are exceptions. The right broker can identify these opportunities.
• Article 4 areas — Properties in Article 4 areas have planning permission for HMO use, which can strengthen the case for a hybrid valuation as it confirms the property's established use class.
• Capital recycling — A higher valuation means greater borrowing capacity, which can allow investors to withdraw more equity and redeploy it into new projects. Visit our HMO finance page to learn more.

Outcome

We secured a hybrid valuation on this 5-bed HMO, resulting in a higher valuation than the bricks-and-mortar figure previously obtained. This gave the client the ability to recycle more capital out of the deal to put towards their next project.

Frequently Asked Questions

What is a hybrid HMO valuation?

A hybrid valuation combines elements of a standard residential valuation with a commercial or investment-style approach, taking into account the property's rental income alongside its physical value.

Why do some brokers not know about hybrid valuations?

Hybrid valuations on sub-6-bed HMOs are less common, and not all brokers have experience with the lenders and valuers who offer this approach. It requires specialist knowledge of the HMO finance market.

What is an Article 4 direction?

An Article 4 direction is a local planning restriction that removes certain permitted development rights. In the context of HMOs, it means planning permission is required to use a property as a house in multiple occupation.

Can I get a hybrid valuation on a 4-bed HMO?

It depends on the lender and the property. While less common below 5 beds, it is always worth discussing with a specialist broker who can assess your specific circumstances.

Does a higher valuation mean I can borrow more?

Generally, yes. Lenders base their loan-to-value calculations on the valuation figure, so a higher valuation typically means a larger loan is available, subject to the lender's criteria and affordability checks.

How long does the valuation process take?

Valuation timescales vary by lender and valuer, but typically a valuation is instructed once the mortgage application is underway. The process usually takes a few weeks from instruction to report.

Next Steps

If your HMO funding needs more than a standard approach, or you believe your property could benefit from a hybrid valuation, get in touch to discuss your options. You can also learn more about our HMO finance services or see how we work.