For any property professional, understanding property valuations is crucial. If you're looking to optimise financing, maximise profitability, or strategically plan your exit, mastering the difference between aggregate value and block value is a must.
By understanding how these valuation methods influence your projects, you can unlock greater capital, mitigate risks, and ultimately achieve superior returns, ensuring you stay ahead in today's competitive environment.
Definitions
While both terms relate to the valuation of multi-unit properties, they represent fundamentally different approaches:
What is Aggregate Value?
Aggregate value refers to the sum of the market values for each unit in a multi-unit property, if they were sold individually on the open market.
Example: Consider an apartment block which contains seven flats, each valued at £300k when sold individually. In this case, the aggregate value of the entire block would be calculated as £2.1m (7 x £300k).
What is Block Value?
Block value is calculated by assessing an entire multi-unit property as a single asset. This is almost always lower than the aggregate value. Buyers will expect to pay less per unit due to the bulk purchase and their investment appetite.
There are 2 ways the valuer will approach the value:
1. Applying a discount of between 10% to 20% to the aggregate value. This discount accounts for the time, marketing costs, and potential risks associated with selling multiple units individually.
Example: A 7-flat block with an aggregate value of £2.1m would have a block value within the range of £1.68m to £1.89m.
2. Rental Investment basis.
Many buyers will look to hold the flats for long term income on an investment basis. Valuers will therefore look at similar block sales to determine what buyers are willing to pay to purchase long-term, income-producing flats. This is known as the investment yield. Once they have this information, it is applied to the expected rental income to determine the value.
Example: 7 flats in a block are expected to produce a rental income of £15,000 each; a total of £105,000 per annum. The valuer’s research shows that bulk buyers expect an investment yield of 6%. This is then applied to the rental income to provide the investment block value of £1.75m.
Impact on Finance and Strategy
LTV and Leverage
Lenders typically base the LTV (loan-to-value) calculations on the valuation provided by an independent surveyor. If a property is valued on a block basis, the LTV will be calculated against this figure, impacting the amount of finance available to the borrower. If a lender is willing to consider the aggregate value, it can significantly increase the available leverage, allowing the borrower to secure a larger loan.
Exit Strategy Planning
How your property is valued impacts your exit. Lenders want to see a clear, achievable repayment plan, and the exit route you choose will influence whether they rely on the block value or the aggregate value.
With a plan to sell the individual units, the lender is likely to be prepared to use the aggregate value for the property and will base their lending decision on this figure. They will, however, take the block or investment value into account, and should this be significantly lower, it could change the amount they are willing to lend. The impact of this is a reduced loan amount and a higher level of cash you will need to contribute from your own funds.
If the intention is to rent out the units and refinance the property using long term funding, the property will be assessed on a block or investment basis. As indicated, this is likely to be lower than the aggregated figure.
If finance is provided against the higher aggregate value, the lender expects you to follow through with individual sales and will include sales milestones in the loan agreement which they expect you to achieve. At a later date, if you choose to sell the block in one go, you should check the sales figure will be enough to clear your loan, pay you back the money you have put in, and also leave a profit for you.
The key point is that your exit strategy and valuation method must align. If they don’t, you risk being underfunded at the outset or struggling to repay your loan in full when the exit comes.
Risk Assessment
From a lender's perspective, valuing a property on an aggregate basis can carry more risks. It assumes the successful individual sale of multiple units, which can be subject to market fluctuations, sales periods, and marketing costs. A block valuation, while lower, is more cautious and gives lenders additional comfort, as any proposal that is based on this valuewill also be viable if based on the higher aggregate value.
How it Works with HMOs
Houses in Multiple Occupation (HMOs) are valued differently to standard blocks of flats, and the method used can significantly affect borrowing capacity and exit planning.
Investment/Commercial Valuation
Rental income and investor appetite are the two major elements of this valuation approach.
For larger, licensed HMOs, valuers typically capitalise the rental income from the entire property to calculate a total investment value. This approach reflects the yields HMOs generate and aligns with most landlords’ strategies of holding the property, earning income, and refinancing later.
Bricks-and-Mortar Valuation
Some smaller HMOs, such as three or four-bed shared houses, may instead be valued as if they were single family homes using a comparable approach. This can also happen if there are licensing or planning uncertainties, or if a lender prefers a conservative approach. While safer for the lender, it usually results in a much lower value and reduced borrowing capacity.
Why it Matters
If your HMO is valued on a bricks-and-mortar basis when your strategy relies on rental income, you may fall short of the funds you expected. Making sure the valuation method matches your exit as it’s essential for securing the right level of finance.
Many valuers now use a hybrid approach of investment and comparable methods for smaller HMOs so its good to check with your lender at the outset.
How Lendhub Approaches Aggregate vs. Block Valuations
At Lendhub, we don’t take a one-size-fits-all approach. In some cases, we will take the borrower’s goals and exit strategy into account and apply our own market expertise. If we believe a block valuation undervalues a property and doesn’t reflect the market, we won’t hesitate to challenge it.
Lendhub in Action
Our borrower owned a semi-commercial property in Brighton. They required a loan for refinancing and to release equity from the completed development.
The independent valuer suggested a significant 30% discount to the aggregate value, valuing the property on a block basis. This put LTV at a level that was difficult to justify against the borrower’s cash-out requirements.
Recognising the strong underlying demand for individual units, we pushed back on the valuer’s conservative block valuation. While the valuer maintained their position on the block value, our credit team took a strategic view. We understood that unit-level demand was robust, and individual sales were expected to substantially pay down the proposed lending.
By aligning the finance with the actual market demand for individual units, we were able to deliver a £2m facility at 67% LTV lent against the aggregate value.
Read this full case here.
The Value of an Expert Lending Partner
At Lendhub, we partner with our clients to understand their unique challenges and objectives. By leveraging our expertise in valuation methodologies, risk mitigation, and flexible credit decisions, we help borrowers unlock hidden value, navigate complexities, and achieve their financial goals.
Ready to explore how Lendhub can help you unlock the full potential of your property? Contact us today to discuss your next project.
