Commercial valuations for HMO mortgages can result in a higher value than a comparable bricks and mortar valuation and because of this it is worth exploring whether you can maximise the value of your investment property.

In this article, we look at when a commercial investment valuation can be used for mortgage purposes, how the valuation is arrived at and look at the advantages and disadvantages of using a commercial valuation. 

Free Houses at a Residential Area  Stock Photo

What is a commercial valuation?

A commercial valuation of a residential HMO is the valuation of a property which considers the income generated by the property. The valuation treats the property as a business investment rather than a family home. 

The two types of valuations.

Brick and Mortar Valuation – A brick-and-mortar valuation is applied to most HMO properties. A four-bedroom property in a residential area which happens to be let to four sharers is almost certainly going to be valued on this basis. In fact, any property that can very easily be sold as a family home would likely be valued on a brick-and-mortar basis. 

The commercial investment valuation calculation.

To work out the commercial valuation of a property a surveyor will first need to ascertain the market rent for the property. They will deduct operating costs. Using that net figure a surveyor will apply a yield which will give them the commercial valuation.

Example: A 7-bed HMO property achieving a net annual rent of £79,800 In an area generating a typical yield of 7% would give us a valuation of £1,140,000. 

Net annual rent / yield = Valuation. 

The figures are subjective and therefore a commercial valuation is only ever known for sure once that valuation report comes back in from the surveyor!

How to get the best commercial valuation for an HMO.

To give yourself the best chance at securing a strong commercial valuation your HMO property should be a large HMO of 5/6 beds or more in an area abundant with HMOs and strong demand. The property should of course be licensed, have all the correct building regulations, and have the correct fire and electrical certificates. The property should be well presented, ideally it has en-suites in each room or several bathrooms with good communal facilities. If your property meets all the aforementioned then you have given yourself the best chance of a strong commercial valuation.  

When to use a commercial valuation for mortgage purposes.

Of the mortgage lenders that do allow commercial valuations all of them will have set criteria that allow a property to be considered for a commercial valuation. The lender’s criteria are typically, 5/6 beds or more for HMOs and may stipulate the property must be in an Article 4 area. 

Some lenders will only allow commercial valuations on HMOs in an Article 4 area whereas some lenders are more lenient and leave it down to surveyors’ assessment of demand for HMOs in the area. 

If a property is outside of Article 4 but is close to a hospital, or major employer or near enough to a university, where there is an abundance of HMOs, then it is possible that a commercial valuation will be allowed.

It is important to note that most UK buy-to-let lenders do not allow commercial investment valuations but will instead work from a bricks-and-mortar valuation. 

The key points for determining whether a property will achieve a commercial valuation are:

  • Location
  • Planning use
  • Article 4 area
  • The layout of the property – could it easily be used as a main residence for a family, or does it have 5 bedrooms all with en-suites?


Advantages and Disadvantages of using commercial valuations for HMO mortgages.


  • Higher valuation.
  • Allows for greater mortgage borrowing.
  • Can reduce your loan to value and therefore reduce the mortgage rate for mortgage purposes.


  • Reduced number of lenders.
  • Commercial valuation lenders often (but not always) have higher mortgage rates.
  • Commercial valuations can be more expensive than standard valuations.
  • Selling a property using a commercial valuation may cause issues if your purchaser is using a mortgage lender that works from a bricks and mortar valuation.

To discuss commercial valuations for your HMO property for mortgage purposes, please do get in touch with one of the team.



Can I get a commercial HMO valuation for mortgage purposes?

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It is possible to get a commercial valuation for mortgage purposes. Some residential and commercial buy-to-let lenders will work from a commercial valuation rather than a brick-and-mortar valuation.


Which mortgage lenders accept commercial valuations?

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Many of the commercial mortgage lenders in the UK will allow commercial valuations for HMOs. There are also a handful of residential buy-to-let lenders who will work from commercial valuations for an HMO. Each lender has set criteria for allowing commercial valuations.


Fox Davidson – HMO Mortgage Brokers.

Fox Davidson specialises in buy-to-let mortgages including complex property types such as large HMOs and multi-unit freehold blocks. We have established relationships with both residential and commercial lenders that all work from commercial HMO valuations.