I can see people are puzzled as to why HMO’s aren’t valued as a simple multiple of income by commercial lenders when commercial properties usually are.

I would suggest it is because there are some fundamental differences between the two…

Commercial

1. leases are long, up to 20 years
2. lenders take comfort from the lease providing an increased likelihood that the loan will continue to be serviced
3. leases are often fully repairing, meaning the tenant is responsible for the upkeep
4. leases have built in break clauses and rent reviews
5. the value of the property reduces considerably when vacant, in some cases by 50%
6. the property has a designated commercial usage with the local council i.e. A1, C1
7. the property cannot be used for a domestic dwelling if not occupied by a commercial tenant
8. commercial tenants runs a business of whatever sort and can therefore be viewed as generally more financially aware

HMO

1. leases are rarely longer than 12 month AST’s
2. sometimes licences...