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When securing finance for property purchases or refinancing, the valuation method used can significantly influence borrowing capacity. Two primary approaches are bricks and mortar valuation and investment valuation, and these can yield dramatically different results—especially for properties intended to generate rental income, such as Houses in Multiple Occupation (HMOs) or buy-to-let investments. Understanding these valuation methods is critical for investors looking to maximise their financing potential.
In this guide, we’ll explore the differences, delve into the advantages of investment valuations, and demonstrate why working with lenders who use this method—even at slightly higher interest rates—can be a smarter choice for your property investment strategy.
A bricks and mortar valuation determines a property’s value based purely on its physical characteristics and market conditions. This method is commonly used for owner-occupied properties and is ideal for standard residential transactions.
In contrast, an investment valuation considers the property’s potential to generate income, typically based on its rental yield. This approach is commonly applied to buy-to-let properties, HMOs, and commercial real estate, where the primary goal is income generation.
For rental-focused properties, an investment valuation can offer significantly greater borrowing capacity than a bricks and mortar valuation. Here’s why:
An investment valuation calculates the property’s worth based on rental income, making high-yield properties far more valuable to lenders.
Example Calculation:
In this scenario, the investment valuation doubles the bricks and mortar valuation of £250,000
Lenders offering investment valuations often provide higher LTV ratios, as rental income assures repayment capability.
Example:
This additional funding can be pivotal for expanding portfolios or financing large-scale projects.
Properties designed for rental income, such as HMOs, multi-unit blocks, or high-demand urban rentals, often have rental yields that far exceed their bricks and mortar valuation. Investment valuations ensure these properties are appraised accurately, reflecting their true earning potential.
A higher loan amount enables investors to reinvest in their portfolio—whether by funding renovations, purchasing additional properties, or scaling operations. This boosts both short-term cash flow and long-term returns on investment.
Choosing a lender specialising in investment valuations might mean accepting a slightly higher interest rate, but the benefits can outweigh the costs:
A higher valuation allows for larger loans, offering the flexibility to fund additional projects, renovations, or investments.
Lenders using investment valuations understand the intricacies of HMOs, multi-unit properties, and other high-demand rental investments, providing customised financing options.
Unlike bricks and mortar valuations, investment valuations account for the full earning potential of rental properties, ensuring you maximise the value of your portfolio.
With larger loans, investors can enhance properties to increase rental income, leading to improved ROI and long-term profitability.
Understanding the distinction between bricks and mortar and investment valuations is crucial for property investors. While bricks and mortar valuations work well for standard residential properties, investment valuations unlock the full potential of rental-focused assets. By leveraging these valuations, you can secure higher loans, improve cash flow, and achieve better long-term returns.
At Auction Finance, we specialise in working with lenders who recognise the true value of rental income and offer financing solutions tailored to your investment goals. Contact us today to discuss how we can help you maximise your borrowing potential and take your property portfolio to the next level.
Ans: Investment valuations are typically used for properties intended as buy-to-let investments, HMOs, or commercial properties with high rental income potential.
Ans: No, not all lenders provide this option. Specialist lenders focused on rental or commercial properties are more likely to use investment valuations.
Ans: Yes, lenders offering investment valuations may charge higher interest rates. However, the increased borrowing potential and flexibility often justify the cost.
Ans: In most cases, the lender decides based on the property type and intended use. If you prefer an investment valuation, work with a specialist lender or broker to explore your options.
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