Below market value bridging finance:borrowing against value, not just the price you pay
Below market value bridging finance is a short-term loan for buying property at a discount to its open market value, where the lender sizes the loan on the independent valuation rather than only on the lower purchase price. Done properly, that can reduce the cash you need to put in. Done carelessly, it is one of the quickest ways to have a deal declined.
Lenders like genuine discounts, because the gap between price and value protects their loan. What they do not like is a discount nobody can explain. This page sets out how commercial bridging lenders look at BMV purchases, the evidence they want and how the numbers work.
Key takeaways
Most lenders lend on the lower of price and value; some will lend on valuation when the discount is genuine and evidenced.
The reason for sale, marketing history, comparables and title history are the evidence lenders want.
The independent day-one valuation decides the loan, not the agent's view of value.
Connected-party and back-to-back sales need full disclosure and are declined by many lenders.
Budget for stamp duty, fees and a possible down-valuation, not just the deposit.
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What is below market value bridging finance?
A below market value (BMV) purchase is one where the agreed price is lower than the price the property would fetch on the open market with a normal marketing period. The difference might come from a seller who needs speed, a building that needs work, or a sale process such as an auction or a receivership.
Below market value bridging finance funds that purchase quickly, which matters, because discounts are usually the reward for being able to complete when others cannot. The key question for the borrower is whether the lender will recognise the discount in the loan amount, or simply lend on the purchase price like any other deal.
Why do commercial properties sell below market value?
Lenders will always ask why the seller is accepting less than the property is worth. Credible answers include:
Speed: a seller who needs funds by a fixed date and will trade price for certainty.
Receivership or insolvency: LPA receivers, administrators and liquidators selling to repay creditors. See buying property from receivers.
Auctions: lots that sell below their guide or below comparable private sales. See auction bridging finance.
Probate and estate sales: executors who want a clean, quick disposal.
Condition: a building that needs refurbishment that mortgage-dependent buyers cannot fund.
Portfolio disposals: owners or funds selling several assets together at a blended price.
Off-market deals: vendors who prefer a discreet sale to a single buyer.
The weaker the explanation, the more likely the lender will lend on the price paid, not the valuation.
Do lenders lend against the valuation or the purchase price?
This is the heart of below market value bridging finance. There are two approaches in the market:
Approach
How the loan is sized
When it applies
Lower of price and value
LTV applied to whichever is lower, usually the price
The default for most lenders and most cases
Lending on valuation
LTV applied to the independent market value
Selected lenders, where the discount is genuine, evidenced and the borrower is credible
Illustrative example: a commercial building is valued at £1,000,000 and you agree to buy it for £750,000.
At 70% of the lower of price and value, the gross loan is £525,000, so you fund £225,000 plus costs.
At 70% of the valuation, the gross loan is £700,000, which is over 90% of the price, so you fund £50,000 plus costs.
Round numbers, for example only. The gross loan includes retained interest and fees, so the cash released on day one is lower. Our guide to commercial bridging LTV explains gross and net loans in detail.
Have a deal in front of you?Send us the property and the numbers. We will tell you quickly whether it is fundable.
What evidence do lenders want for a genuine discount?
A commercial bridging lender that lends on valuation is taking the valuer's word over the market's. They will only do that with evidence. Prepare:
The reason for sale, ideally documented: an auction catalogue, a receiver's appointment, a grant of probate, or correspondence from the vendor's agent.
Marketing history: how long it was on the market, at what price, and what offers were made.
Comparable evidence: sales and lettings of similar commercial property nearby, which the valuer will test independently.
Title history: the price the seller paid and when. A recent purchase at a much lower price raises questions.
Relationship to the seller: confirmation that the sale is at arm's length.
Any introducer or sourcing fee, disclosed in full.
Disclose everything at the start. A discount that emerges late, or a connection to the seller that the lender finds for itself, usually ends the application.
How does the day-one valuation work on a BMV purchase?
The lender instructs an independent RICS valuer from its panel. The valuer reports the market value of the property as it stands on the day of inspection, with a normal marketing period. That day-one valuation is the figure that decides your loan.
Three things to bear in mind:
The valuer is not bound by your view of value or the agent's. If comparable evidence is thin, expect a cautious figure.
Value after refurbishment is a separate figure. If you are adding value through works, that is a refurbishment bridge with its own structure.
Some lenders also ask for a value assuming a restricted marketing period, which can be lower.
How much equity do you need for bridging finance on a BMV deal?
Your cash requirement is the purchase price less the net loan, plus costs. Even where a lender lends on valuation, plan to fund:
Any shortfall between the net loan and the price.
Stamp duty: for non-residential property in England, 0% to £150,000, 2% from £150,001 to £250,000 and 5% above £250,000.
The arrangement fee, typically around 1% to 2% of the loan, often deducted from the advance.
Valuation and legal fees for both sides, paid as the case progresses.
Retained interest, deducted from the gross loan if the lender retains it.
Works and contingency, if the property needs them.
At auction, the 10% deposit is usually paid on exchange before the bridge completes, so you need that cash available on the day. Run your own figures through our LTV calculator before you commit.
What risks do lenders see in below market value deals?
BMV purchases attract extra scrutiny because they have been used to disguise inflated valuations. A broker who knows the market will raise these points before the lender does:
Connected-party sales: buying from your own company, a relative or a business partner. Some lenders will consider it with full disclosure; many will lend only on price.
Back-to-back or sub-sale structures: where the property is bought and resold quickly at a higher price. These need careful legal handling and are declined by many lenders.
Heavy reliance on the discount: if the deal only works on valuation lending, a down-valuation can leave a funding gap days before completion.
Weak exit: the discount helps the entry, but the lender still needs a credible sale or refinance within the term.
We would rather tell you upfront that a deal will be sized on price than find out at valuation stage.
Is there a cheaper alternative to a bridging loan for a BMV purchase?
Sometimes. If the seller can wait and the property is lettable as it stands, a commercial mortgage costs less over time. A delayed completion can give you the weeks a mortgage needs. Vendor finance or a joint venture can reduce the cash required. Our guide to alternatives to bridging loans compares them.
The reason bridging dominates BMV purchases is that discounts usually depend on speed and certainty. If a mortgage timetable would lose you the discount, the bridge may be the cheaper option overall.
Unregulated commercial and investment bridging is arranged directly. Any case where the security includes a home you or an immediate family member occupies, including a flat above commercial premises, may be regulated and is introduced to a firm directly authorised by the Financial Conduct Authority. We are not directly authorised by the Financial Conduct Authority ourselves. Your property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
We cannot speak for any commentator. The general consumer message about bridging is sensible: it is short-term, more expensive than a mortgage, and should only be used with a clear exit. For commercial property bought below market value, that applies equally. Know your total cost, evidence your discount, and have the refinance or sale plan ready before you borrow.
Do you need a valuation for a bridging loan?
Yes. For commercial property, the lender almost always instructs an independent RICS valuer from its panel, and the borrower pays the fee. On a below market value purchase the valuation is especially important, because it decides whether the lender can recognise the discount when sizing the loan. Some lenders may accept a desktop valuation on low loan to value cases.
Is there a cheaper alternative to a bridging loan?
If the seller can wait and the property is lettable as it stands, a commercial mortgage is usually cheaper over time. Delayed completion, vendor finance and joint venture equity are other options. However, BMV discounts often depend on completing quickly, so a bridge can be the cheaper route overall if it secures a discount you would otherwise lose.
How much equity do you need for bridging finance?
It depends on whether the lender sizes the loan on the purchase price or on valuation, and on the loan to value it offers, commonly up to 70% to 75% on a first charge for standard commercial property. On top of any shortfall, budget for stamp duty, the arrangement fee, valuation and legal fees, retained interest and any works.
Can I get 100% of the purchase price on a below market value deal?
Occasionally, where a lender lends on valuation and the discount is large enough, the gross loan can approach the purchase price. You would still need to fund stamp duty, fees and retained interest. Alternatively, additional security over another property can make up the difference. We will show you the real cash requirement before you commit.
Will a lender accept a purchase from a connected party?
Some will, with full disclosure and an independent valuation, but many will lend only on the purchase price or decline altogether. Connected-party sales include buying from your own company, a relative or a business partner. Tell us at the outset so we can approach lenders that consider these cases.
