House valued at £0 because it is HMO???

Judzzy

Hi,

I would love to hear if anyone went through the same thing and what was the outcome.
We applied for a FTB mortgage with Barclays. The house is currently HMO but we are buying it for us and it will be a single occupancy. At the moment the living room and dining room are used as bedrooms but we will break the wall between the 2 rooms to make it a big living space (I don't think broker mentioned this when he did the application).
The valuation was done last Thursday and now Barclays called the broker to say the house was valued at £0 because it's HMO. Has anyone ever heard of such a thing??? My broker is abroad and I am panicking so anyone with experience with this or any info would be greatly appreciated!

MortgageMamma

I've heard of it happening. The surveyor will have sent this message to barclays because the house is out of lending policy as it stands now. It is to protect lenders from people buying a property like this on a residential mortgage and renting it out. It doesn't mean the property value is literally nothing, it just means it clear from the interior of the property that its been rented to on a HMO basis historically.

Did your broker know the house had been one of these properties? I appreciate it doesn't seem like an important thing to bring up if you don't know how mortgage lenders assess them.

How many kitchens and bathrooms does the property have? How many floors?

The property will be mortgagable but I doubt Barclays will do it, its out of policy for them

You need an EXPERIENCED broker to find the right lender for you, or perhaps your current broker could do it as they may not have come up against this obstacle before

Judzzy

Thank you so much for replying, this is so stressful!!
The broker didn't know about it because I didn't know it was something to mention (and he didn't ask!)
There is one kitchen and 3 bathrooms, one on each floor so ground floor, first floor and second floor (which is an extension).
Do we need to change the status of the house to a single occupancy to mortgage it with Barclays? It was hard enough to find a lender because we have other criteria that come into account...

Thrugelmir

Judzzy wrote: »

At the moment the living room and dining room are used as bedrooms but we will break the wall between the 2 rooms to make it a big living space (I don't think broker mentioned this when he did the application).

Valuer reports to the lender on the property at the time of the visit. What the rooms are currently used for or the works you propose carrying out make no difference.

Judzzy

Also, why do you say it's out of policy for them? I read their lending criteria and didn't see anything about this... unless it's just a known thing? But anyway if we are planning to do some works there shouldn't it be what matters to them? Sorry going a bit crazy...

Judzzy

@Thrugelmir So how do we overcome this?? It sounds ridiculous they would not lend us just because of that! But I'm a FTB so have no idea about anything... Just getting desperate!

financegeek

It will be out of policy as it's currently an HMO (e.g. buy to let with multiple tenants) and they're providing you with a residential mortgage.

The HMO criteria wouldn't come up in their residential lending criteria, but probably would in their general buy to let criteria, as it's a sub division of buy to let lending.

I'm surprised in a way that your broker didn't query this, but i guess depending on the area it may not be that common, so he probably assumed it was a standard residential property as you didn't mention it (not your fault as you weren't to know).

Assuming your broker has been competent in all other aspects I'd give him a chance to resolve the deal now that he's aware of the property type.

Judzzy

Thank you @financegeek for your reply!

Do you think it's possible to change the status of the house in order to go with Barclays? Or maybe the works need to be done before we buy?? I feel we were so close...

ACG

Barclays do not lend on HMOs and on the date of completion the property will be a HMO.

You have 2 options really:
1) Get the landlord to alter the property to a normal house and re-instruct a valuation.
2) Take out a bridging loan, alter the layout and then get a mortgage. This is expensive and requires a large deposit.

As it stands you are unlikely to get a normal mortgage lender to do it. If your options are limited as it is then its unlikely you will get a normal lender to lend against it.

Judzzy

@ACG thank you so much! Wow it doesn't seem straightforward... I am a bit devastated...

Judzzy

Would another bank give us a mortgage on these conditions? We could maybe go with Santander but not sure... Anyone knows if any other bank would lend us on an HMO?