HOUSE OF MULTIPLE OCCUPANCY (HMO)
In the context of UK residential property, HMO assets have very particular characteristics and, as such, require a specialist approach to valuation. HMOs fall into two basic categories. Those that require planning permission to create them and those that do not. If your property is situated in an Article 4 area or the number of rooms is more than six, planning permission will be required.
We believe the correct approach to valuing HMOs that require planning permission is quite straightforward: to look at the income stream generated and apply a yield. This approach has to take into account the operational costs that HMOs entail. These factors will typically mean a reduction of c.25% in terms of the gross to net income or adjusted gross rent, as these properties can have relatively high rates of occupier churn – which can mean voids and letting fees – plus standard maintenance costs.
For HMOs that do not require planning permission, those that are not located in Article 4 areas and accommodate six or fewer rooms, we will adopt a cost-plus approach. This is where we look at the average price of a comparable house – a property that hasn’t been extended or converted – and consider the cost of conversion works as the premium.
HMOs remain a vital component of the UK housing market, addressing the needs of diverse tenant groups while offering lucrative opportunities for investors. The sector’s growth is underpinned by strong demand, but it is also characterised by significant regulatory and management responsibilities. As the market evolves, stakeholders must adapt to changing regulations, technological advancements, and shifting demographic trends to ensure sustainable and beneficial outcomes for all parties involved.
Why Choose Terracotta?
As valuers it is our responsibility, to ensure that regulatory requirements are being met and these can differ from one local authority to the next. HMOs are complex and demand an expert approach. At Terracotta, we pride ourselves on specialising in HMOs. It is vital to work with a competent surveyor that understands the correct approach to valuing an HMO. Please contact our team of Registered Valuers and HMO specialists to find out more.
VALUATION services
Terracotta Property provides tailored valuation services for residential, commercial and HMO assets. Using advanced analytics and market expertise, their RICS Registered Valuers deliver accurate insights. Services include assessing income potential for commercial properties, valuing HMOs based on conversions and rental yields, and evaluating residential assets by location, condition, and market trends.
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Commercial Property Valuations
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Commercial Rent Review & Leasehold Advisory
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Compulsory Purchase
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Lease Extension & Freehold Enfranchisement
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Matrimonial
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Tax, Probate & IHT
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House of Multiple Occupancy (HMO)