What is Aggregate Value on a MUFB?
Aggregate value is the combined valuation of each rental unit within a MUFB, treated as a single entity. By aggregating the value of each unit, lenders often grant a more significant loan amount, especially when compared to assessing each unit individually. This combined valuation approach views a MUFB as a cohesive investment, enhancing your loan potential for further property investments or capital raise.
With an aggregate valuation, each flat within your Multi-Unit Freehold Block (MUFB) is valued individually, as if you were to sell each one separately at its full market value. This isn’t about magically creating extra value—it’s just a method to calculate what the entire block would be worth if each unit were sold on its own. When we add up each unit’s value, we get the aggregate. But here’s the catch: for this to work, each flat generally needs to meet a minimum size—typically 35 square meters—so it’s eligible for its own mortgage.
Now, most lenders don’t stop there. They often apply a “block discount” of around 10%, depending on factors like demand in the area and the number of units in the block. Why? Owning a block with multiple units usually means a trade-off in value compared to individual sales, as the risk is a tad lower for lenders when units are together.
Block Valuations vs. Aggregate Valuations
A critical distinction in MUFB valuations lies between block and aggregate valuations.
Block Valuation
In a block valuation, the MUFB is assessed as a single freehold property with all units contributing to its income. This approach often results in a conservative value, as the property is considered one large unit with shared income potential, which lenders see as relatively lower risk.
Aggregate Valuation
Aggregate valuation, on the other hand, considers each unit individually, tallying up the total for a higher overall value. Since each unit’s rental income and market value are individually assessed, the final aggregate valuation tends to be higher. Many lenders now allow capital raises based on this combined valuation, enabling investors to secure more significant funding.
Another factor to keep in mind is rental income. For an aggregate valuation, the lender will often calculate the rental yield, which involves adding the expected rents from each flat. This can impact the final value because lenders may cross-check the overall building value against the rental yield. They might adjust the valuation based on that yield, especially if rental income significantly influences the building’s value.
Why Choose Aggregate Value for Your MUFB?
Using aggregate value when valuing a MUFB can unlock additional equity, giving you greater leverage for future investments. It’s particularly advantageous if you have a block in an area with rising property values or high rental demand.
Steps to Obtain Aggregate Value on a MUFB
- Obtain a Professional Valuation
Hire a surveyor experienced in MUFBs. The professional should assess each unit’s income, rental demand, and market position to determine aggregate value.
- Find the Right Lender
Not all lenders support aggregate valuation for MUFBs, so select one with expertise in this field. Specialists like Advocate Finance and Adept Mortgages offer MUFB-specific financing and have relationships with lenders who recognise aggregate values.
- Submit Your Application with Valuation
Once your lender is chosen and you have a valuation, submit your financing application. This process should include the breakdown of the aggregate value, with each unit’s valuation itemised.
- Review and Compare Loan Offers
Compare the loan-to-value (LTV) ratios from different lenders. The aggregate value often yields a higher LTV, allowing for larger financing, which you can direct toward other property investments.
Benefits of Aggregate Valuation in Capital Raises for MUFBs
Higher Loan Amounts
Aggregate value typically means a higher loan amount than you’d get with block valuation, giving you more capital to work with.
Flexible Investment Potential
With additional capital, you can reinvest, buy more properties, or fund renovations that enhance rental income.
Better Leverage
Aggregate value increases your property’s LTV ratio, potentially lowering down payments and interest rates, thereby improving your leverage.
FAQ about Capital Raise Using Aggregate Value – MUFB
Q1: What is a Multi-Unit Freehold Block (MUFB)?
A MUFB is a property with multiple rental units under one ownership, making it easier to manage and finance as a single entity.
Q2: What is the difference between block and aggregate valuation?
Block valuation views a MUFB as one freehold, often with a lower value, whereas aggregate valuation values each unit individually, which can raise the overall value.
Q3: Why do investors choose aggregate valuation for capital raises?
It often results in higher loan amounts, increasing investment capital and flexibility for investors.
Q4: Can all lenders provide capital based on aggregate value?
No, not all lenders offer capital raises based on aggregate value. It’s essential to find one that specialises in MUFB financing.
Q5: Are there risks with capital raising on an aggregate value basis?
Yes, especially in cases where rental demand drops or property values fall. Carefully select high-demand areas and ensure sustainable rental incomes.
Final Thoughts
Aggregate value on a MUFB can transform your investment capacity, granting more capital and flexibility for expanding your property portfolio. By working with the right professionals and lenders, you can maximise the benefits and make this financing strategy work for your long-term success. Ultimately, the goal is to work with the right lenders and find a broker who knows the ins and outs of aggregate versus block discount valuations. A skilled broker can also ensure that the valuation reflects the full aggregate potential rather than a heavily discounted block valuation.
For more details and tailored advice on how to leverage aggregate value on a MUFB to maximize capital raise potential, we encourage you to reach out to our knowledgeable team. Simply call our office at 0333 335 6595 or message us to speak with a member of our dedicated commercial team.