Below Market Value Bridging Loans

Below Market Value Bridging Loans for Property Investors and Developers

Buying a property below market value can create a strong opportunity for investors, developers and landlords, but it can also make the finance more complex.

A below market value bridging loan is a short-term finance option that may allow you to purchase a property using the property’s open market value rather than only the discounted purchase price. This can be useful where a seller wants a quick sale, the property needs refurbishment, or the buyer needs to move faster than a standard mortgage would allow.

At Kerr & Watson, we help investors and developers understand whether a below market value bridging loan is suitable, how lenders are likely to view the transaction and what exit strategy may be needed before an application is submitted.

What Does Below Market Value Mean?

Below market value refers to purchasing a property for less than its open market valuation. This can happen for several reasons, such as a seller needing a quick sale or a property requiring significant refurbishment.

Can You Get A Bridging Loan On A Below Market Value Property?

Yes, it may be possible to get a bridging loan on a property being purchased below market value.

The key difference is that some lenders may assess the loan against the property’s open market value rather than only the lower purchase price. This can sometimes allow investors to borrow a higher percentage of the amount needed to complete the purchase.

However, this is not automatic. Lenders will want to understand why the property is being sold at a discount, whether the valuation supports the open market value, how quickly the transaction needs to complete and how the bridging loan will be repaid.

Why Would a Seller Accept a BMV Offer?

A seller may accept a below market value offer for several reasons, and it is not always because there is something wrong with the property. In some cases, the seller may need speed due to financial pressure, relocation, divorce, probate, repossession risk or a wider portfolio sale.

In other situations, the property may need refurbishment or may not appeal to a standard residential buyer, meaning a cash buyer or bridging finance buyer can offer certainty and speed. For investors, this can create an opportunity, but lenders will still want to understand why the discount exists and whether the valuation supports the stated open market value.

Why Are Lenders Cautious With Below Market Value Purchases?

Although a below market value purchase can look attractive, lenders will usually want to understand why the seller is accepting less than the property appears to be worth.

A genuine discount can make sense where the seller needs speed, the property needs work, or the buyer is taking on risk that a normal residential buyer would not accept. However, lenders will be cautious if the discount cannot be explained, the valuation looks optimistic, the transaction involves connected parties, or the seller appears to be under pressure.

The lender’s concern is whether the property could genuinely be sold for the stated open market value if they ever needed to recover their funds. This is why the valuation, legal work and exit strategy are so important.

Understanding Open Market Value

Open market value (OMV) represents the price a property would achieve if sold under normal conditions, with both buyer and seller acting knowledgeably and without pressure.

Several factors influence OMV, including the property’s location, condition, local amenities, and market trends.

Lenders use OMV to determine how much they are willing to lend. A RICS (Royal Institution of Chartered Surveyors) surveyor typically carries out a property valuation to provide an independent and objective assessment.

For below market value bridging loans, the valuation is often one of the most important parts of the application. A lender will not usually rely on the buyer’s opinion of value or the seller’s explanation alone. They will want an independent valuation to confirm whether the property is genuinely worth more than the agreed purchase price.

This is particularly important where the buyer is hoping to borrow against the open market value rather than the purchase price. If the valuation comes in lower than expected, the loan amount may be reduced or the buyer may need to contribute more of their own funds.

What Is A Below Market Value Bridging Loan?

Below market value bridging loans are short-term finance solutions designed to bridge the gap between purchasing a property and arranging long-term finance or selling the property.

These loans are particularly useful for BMV deals, as they can be based on the higher OMV rather than the discounted purchase price.

How Do They Work?

Higher Loan Amounts

Unlike traditional mortgages, BMV bridging loans can be calculated using the property’s open market value instead of the lower purchase price. This means you may be able to borrow more and use less of your own cash.

Speed and Flexibility

Bridging loans are quicker to arrange than standard mortgages, making them ideal for time-sensitive deals where acting fast is crucial.

Example Of A Below Market Value Bridging Loan

Imagine a property has an agreed purchase price of £200,000, but a RICS valuation confirms an open market value of £250,000.

With a standard mortgage, the lender may base borrowing on the lower purchase price. With a below market value bridging loan, some lenders may be willing to look at the higher open market value when calculating the loan-to-value.

This can sometimes reduce the amount of cash the buyer needs to put into the deal, although the lender will still assess the strength of the valuation, the discount, the borrower’s experience and the planned exit strategy.

The important point is that below market value does not simply mean “cheap property”. The discount needs to be evidenced, commercially credible and acceptable to the lender.

Why Use a Bridging Loan for BMV Purchases?

There are several advantages to using a bridging loan for a below market value property:

Quick Access to Funds

BMV deals often require a rapid turnaround, and traditional mortgages may not be suitable due to their lengthy approval processes. Bridging loans can be arranged swiftly, enabling you to secure the property without delay.

Leverage and Gearing

By using the higher OMV for loan calculations, you can maximise your borrowing potential. This increased leverage allows you to spread your investment capital further and expand your portfolio more efficiently.

Funding Renovations

If the BMV property requires renovation, a bridging loan can provide the necessary funds to complete the work. Once the property’s value has increased, you can refinance onto a long-term mortgage or sell the property for a profit.

Repaying Your Bridging Loan

It’s essential to have a clear exit strategy for repaying your bridging loan. Common repayment methods include:

• Selling the Property: Once renovations are complete and the property’s value has increased, you can sell it and use the proceeds to pay off the loan.
• Refinancing: You may choose to refinance onto a long-term mortgage, especially if you intend to keep the property as a rental investment. The increased value of the renovated property can improve your refinancing options.

A well-thought-out exit plan reduces the risk associated with bridging finance and ensures a smoother transition to your next steps. Due to the risk involved with bridging loans, you should never proceed unless you are certain on your exit and you should always take professional advice.

Key Considerations for BMV Bridging Loans

While BMV bridging loans offer significant benefits, it’s important to consider the following:

Interest Rates and Costs

Bridging loans typically have higher interest rates than traditional mortgages. There may also be arrangement fees, valuation fees, and legal costs. It’s crucial to factor these into your financial planning.

Lender Requirements

Lenders will scrutinise the details of the BMV transaction, including the seller’s motivation and the valuation report. They may use different valuation methods, such as:

• 90-Day Value: The estimated price if the property had to be sold within 90 days, often used in forced sale scenarios.
• 180-Day Value: The likely price achieved if the property had to be sold within 180 days.

When to Consider a Bridging Loan

BMV bridging loans are particularly useful in the following scenarios:

• Property Portfolios: When buying multiple properties at a discount, bridging loans can provide the necessary capital to close deals quickly.
• Distressed Sellers: If a seller is willing to offer a significant discount for a fast sale, bridging finance can secure the deal.
• Renovation Projects: Properties needing refurbishment can benefit from quick financing, allowing you to add value and refinance later.

Can First-Time Investors Use Below Market Value Bridging Finance?

Potentially, yes. Some lenders will consider first-time investors, but they are likely to look carefully at the strength of the deal, the borrower’s wider financial position and the exit strategy. Experience can help, particularly where refurbishment or resale is involved, but it is not always essential if the proposal is well thought through.

A first-time investor will usually need to show that they understand the risks of bridging finance, have allowed for costs and delays, and have a realistic plan for repaying the loan.

Can You Use A Below Market Value Bridging Loan For Commercial Property?

Yes, below market value bridging finance may be available for commercial or mixed-use property, but these cases are often assessed more carefully than standard residential investment purchases.

Lenders will consider the property type, valuation, tenant demand, condition, planning use, marketability and exit strategy. A discounted commercial property may create a strong opportunity, but the lender will want to understand why the discount exists and whether the property can realistically be refinanced or sold later.

This is an area where advice is particularly important, as lender appetite can vary significantly.

Are Below Market Value Bridging Loans Regulated?

Many below market value bridging loans are arranged for investment or business purposes, which means they are often unregulated.

If the property is your own home, or you or a close family member will live in it, the loan may fall under regulated bridging rules. Regulated bridging loans are assessed differently and lender appetite for using open market value rather than purchase price may be more limited.

This distinction matters because it affects the lenders available, the advice process and the way affordability and repayment strategy are assessed.

Frequently Asked Questions About Below Market Value Bridging Loans

Can I get a bridging loan based on open market value rather than purchase price?

Potentially, yes. Some lenders may assess the loan against the open market value where the property is genuinely being purchased below market value, although this will depend on the valuation, lender criteria and overall strength of the case.

Can I borrow 100% of the purchase price?

In some cases, certain lenders may consider lending up to the purchase price where there is a strong enough discount against open market value. This is not guaranteed and will depend on the valuation, borrower profile, security and exit strategy.

Why would someone sell a property below market value?

A seller may accept a lower price because they need speed, the property requires work, they are facing financial pressure, or the sale forms part of probate, divorce, relocation or a portfolio disposal.

Do I need a RICS valuation?

In most cases, the lender will require an independent valuation to confirm the property’s open market value. This is especially important where borrowing is being assessed against OMV rather than the purchase price.

Can I use BMV bridging finance for refurbishment?

Yes. Bridging finance is often used where a property is being bought at a discount because it needs refurbishment, repair or improvement before it can be sold or refinanced.

What exit strategy do I need?

Common exit strategies include selling the property after refurbishment or refinancing onto a buy-to-let, commercial mortgage or development finance facility. The exit needs to be realistic and acceptable to the lender.

Conclusion

Below market value bridging loans can be a useful option for property investors, landlords and developers who need to move quickly on a discounted property purchase. They can sometimes allow borrowing to be assessed against open market value rather than just the purchase price, but this will always depend on the valuation, lender criteria, security position and exit strategy.

The key is making sure the discount is genuine, the figures work after costs and the repayment plan is realistic from the outset. A BMV deal may look attractive, but lenders will still want to understand why the property is being sold at a discount and how the bridging loan will be repaid.

At Kerr & Watson, we help investors and developers assess below market value bridging opportunities, compare suitable lenders and plan a clear route from purchase through to sale or refinance.

Speak to Kerr & Watson to discuss your bridging finance options.