Below Market Value Bridging: finance against what it is worth
Bought well? The right lenders will work from the property's true market value rather than the discounted price you negotiated. That can mean putting in far less cash, sometimes covering most of the purchase price. Here is how BMV bridging genuinely works.
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How below market value bridging works
Most lenders lend a percentage of the purchase price or a percentage of the open market value, and in practice it usually works out as whichever is lower. Different lenders run that calculation differently, which is half the game. The BMV-friendly ones are the exception. When the discount is genuine, they will work from the open market value, or more cautiously the 180 day value, which is what the property would fetch with a realistic marketing period.
The effect on your cash is dramatic. Buy at £160,000 a property that values at £200,000, and a lender working from value at 70% will advance £140,000. That's most of your purchase price funded, with your cash doing the work on the next deal instead.
"One of the people who taught me this industry told me you make money when you purchase the property. If you're purchasing below market value, then you've made money."
Why would anyone sell below market value?
The question every sensible person asks, and the answer is speed and certainty. Sellers take a discount when a fast, sure sale is worth more to them than a full price: avoiding a repossession, settling a probate, a landlord exiting a portfolio in one go, a chain that collapsed a week before completion, a company that needs the cash off its books this quarter.
Your job is moving fast enough to be worth the discount. That's exactly what bridging is for, and why BMV buyers and bridging lenders get on so well.
What lenders want to see on a BMV deal
- A genuine arms length discount, evidenced, not engineered between friends
- A robust valuation that supports the market value figure
- Your exit: refinance at the full value, or resale
- The usual: clean legal title and a deal that completes quickly, since speed is usually why the discount exists
A live example: £450,000 asking price, £375,000 for a quick sale
A client came to me with this one recently. It's still running as I write, so I'm not going to put final numbers on it. The property is an office block on the market at £450,000. The vendor wants it gone quickly, so he's said that for a cash purchase he will take £375,000.
The client doesn't have that kind of cash sitting there. What he does have is a reason to move. The building has four offices in it. He needs one for his own business and he's going to sublet the other three. There's nothing wrong with the place. At £375,000 he's buying something worth £450,000, so on paper he's £75,000 ahead on day one.
On paper is the important bit. Bridging isn't cheap, and the fees on a commercial deal come off that gap, so nobody is walking away with a clean £75,000. But the principle behind it is the thing that was drummed into me when I started in this industry.
Cash is cash and we're not going to pretend otherwise. But look at why the vendor asked for it. He asked for cash because he wants speed. So the question isn't whether you've got cash, it's whether you can give him the same speed. We've completed a bridge in four days. That lets a client go back to the vendor and say: I'm not a cash buyer, but I'll guarantee you completion in two weeks. Put that in front of somebody who wants out quickly and most of them will take it.
Your exit is the other half of a below market value deal
On a deal like that I start the exit on day one. While the bridge is being arranged I'm already talking to remortgage lenders, and the application goes in within a day or two, not months down the line.
Here the exit is a remortgage at 75% of the open market value, or 70% with some lenders. He isn't doing any works, so nothing about the building changes between the purchase and the refinance. What changes is the figure the lender is working from.
That's where it gets interesting. A valuation that lands above what you've just paid makes some lenders uncomfortable, and they'll want to know why the price was low. The answer is the same answer as at the start: the vendor wanted speed and paid for it in discount. That's standard, and every lender will understand it once somebody puts it to them properly. Getting it in front of the right lender is the broker's job, and on a below market value case it's most of the job.
The office block above is live as we write. It gets written up properly once it completes.
See the case studies we have published →Your questions
What does below market value actually mean?
A property bought for genuinely less than it would fetch on the open market with normal marketing. The key word is genuinely. A discount off an inflated asking price isn't BMV, and valuers can tell the difference.
Do lenders lend against the value or the purchase price?
Most work from whichever is lower. A smaller group of lenders will work from the open market value or the 180 day value when the discount is real and the valuation supports it. Knowing which lenders those are is most of what you're paying a broker for on these deals.
Can I get 100% financing on a below market value deal?
Sometimes close to it. If the discount is deep enough, a loan set against the value can cover most or occasionally all of the price. Don't plan around it though. It depends entirely on the valuation and the lender, and we'll tell you honestly what your deal supports.
How do you find below market value properties?
That's the sourcing side, and honestly it isn't what we do. Auctions, direct to vendor, probate and landlords selling up are where they come from. What we would say: be careful paying for BMV lists, and get the finance agreed in principle before you offer, because speed is your bargaining chip.
Can you get a mortgage on a below market value property?
Usually not at the pace a BMV deal needs, and mortgage lenders work off the price you're paying anyway. The standard route is bridge the purchase, then mortgage or sell later at the full value once any six month rules have passed.
Why would someone sell below market value?
Speed and certainty. Repossession avoidance, probate, a collapsed chain, a landlord selling up in one transaction. A fast sure buyer is worth a discount to them, and bridging is what makes you that buyer.
Can I remortgage straight after buying below market value?
This is the famous six month question. Many mortgage lenders won't remortgage within six months of purchase, and some that will use the price you paid rather than the value. Plan the exit with us before you buy, not after, because the right refinance lender makes the whole strategy work.
Is buying below market value legal?
Completely, when it's an honest transaction between willing parties. What causes trouble is manufactured discounts and misleading valuations, which is fraud territory and lenders are wise to it. Genuine deals have nothing to worry about.
Can I buy below market value if the vendor wants a cash buyer?
Often, yes. Ask why they want cash. Almost always it's speed, not the cash itself. If you can match the speed you can usually match the offer, and a bridge is the closest thing to cash there is. We've completed one in four days, which lets you promise a vendor completion in a fortnight and mean it.
Will a lender question a valuation that comes in higher than the price I paid?
Some will, and it's a fair question for them to ask. The answer is usually that the vendor wanted a quick sale and paid for it in discount, which is standard and every lender understands it once somebody explains it properly. Putting that in front of the right lender is the broker's job, and on a below market value case it's most of the job.
Got a deal like this on your desk?
Tell us the numbers and we'll tell you honestly what's achievable.
Prefer to put it in writing? Email support@bridgingfinancebroker.co.uk