Below Market Value Bridging Finance
If you’re looking to raise funds for a below market value property, you could take a short term bridging loan. Get the best deal with ABC Finance.
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Below market value finance is a type of short-term property finance that is used to fund a property sold at a price that is less than its open market value.
For example, if a house is worth £350,000 and is sold at £300,000 through a direct negotiation rather than being placed on the market through an estate agent.
BMV bridging finance can allow borrowers to fund anything up to 100% of the purchase price of their new property.
In this guide, we break down what this finance is, how it works and what bridging loan rates you can expect to pay.
What is below market value bridging finance?
Below market value bridging finance is a short-term property finance product that is used to fund the purchase of property that is being sold for less than it’s open market value.
As a form of short-term finance, it is not a viable long term solution, and is simply used to acquire the property and get it ready for either sale or refinance.
It’s a type of bridging loan and is more common for residential property, although some commercial properties could qualify.
How does Below Market Value finance work?
It works by allowing you to borrow against the true market value, rather than the purchase price, as would be the case with a mortgage.
BMV loans are more commonly available for unregulated bridging loans. Lending against the full market value is less common for regulated bridging loans.
Lenders will look to see a clear exit strategy showing how the loan is going to be paid back, Interest is accrued on a daily basis and repaid at the end of the loan term.
Why would someone sell below market value?
There are a number of different reasons why someone would choose to sell a property at a reduced price and often it is because a direct sale will progress quickly and funds are required urgently.
Other reasons for a below market sale are potential repossession, divorce, a death or change in circumstances such as the need to move to a care home.
Many parents choose to sell a property to their children at a reduced price to get them onto the property ladder.
Are you allowed to sell a property below market value?
Yes, you can choose to sell your property for whatever value you decide upon and this is perfectly legal.
Do not feel pressured into selling your home if this is not a choice you wish to make.
Whilst selling a property at below market value is an option for some, it does mean that you may lose out on a substantial amount of money compared to a sale at an open market rate.
If you need to raise funds quickly there may be other options and so speak to a broker such as ABC Finance who can work with you to find the best financial product for your situation.
How to get below market value financing
The best way to get this type of finance is to use a reputable bridging loan broker.
As this is such a niche area of an already niche market, it is much easier to find the best deal through a broker, as many of the high profile lenders will not be ideal for this scenario.
Some lend against the purchase price and many expect a strong financial contribution to the deal of at least 80% of the total deal value.
What is the eligibility criteria for below market value finance?
To apply for a below market value bridging loan you will need to be 18 or over and a UK resident. Most bridging loans have an upper age limit, however, below market value loans do not tend to have an upper age limit.
We can fund below market value loans up to 100% of the purchase price. We may even be able to lend above the purchase price, where refurbishment will take place.
When can below market value financing be used?
Below market value financing is common in the investor community where a property is sold at a discount, often at auction, as it needs substantial work before it is habitable. A mortgage would not be offered in this situation, however a bridging lender would look at the value of the property once work is complete and provide a loan on that basis.
Auction sales also require full payment within a month of purchase and a speedy bridging loan is perfect for this situation.
Bridging finance is also useful for properties that are being built, a loan is taken on the value of the completed property rather than the cost of the build. This short term finance allows work to progress. An exit strategy in this situation would be a sale or refinance to a mortgage.
What are the benefits of bridging finance?
Bridging loans can be a useful form of short-term finance that can be made available quickly for a range of purposes from property and land purchase to renovation.
This type of finance is flexible and bridges the gap when other options may not be available; for example if a property is inhabitable and a mortgage would not be possible.
Below market value loans allow investors to capitalise on properties with a low purchase price, or properties with significant potential that need investment.
As the loan is largely secured against property, or other valuable assets such as antiques, or classic cars, income is less of a consideration for lenders.
How much can I borrow?
We offer bridging loans from £10,000 with no maximum loan size. We can offer large bridging loans and could consider funding for £8m, £50m or even £250m depending on your situation.
Our maximum LTV on below market value applications is 80% of the open market value.
Bridging loans can be arranged relatively quickly, ordinarily within 5-21 days. On rare occasions a loan can be approved in a few days although this is not typical. Here at ABC Finance we can give a funding decision within two hours and if you need fast funding we can work to arrange a quick loan.
What are the costs involved in a bridging loan?
A bridging loan is a legal arrangement where a ‘charge’ is placed on a property giving a lender an interest in the property, as such there are a number of related fees. In addition to interest payments for the loan, you can expect to pay arrangement, exit, administration, valuation and legal fees.
Always keep in mind the total cost of an arrangement and any hidden fees. Using a broker and taking legal advice will minimise any nasty surprises.
- Interest rate – Bridging loan interest rates are currently between 0.39-1.25% per month. Interest rates on your loan can vary depending on how much equity you have in your property, the loan to value (LTV) required, if you take a fixed rate or variable rate product and whether you have poor credit. In some cases, large bridging loans (those over £1,000,000) may get a better rate.
- Lender arrangement fee – Fees tend to range between 1% – 3% of the loan amount on bridging finance, however most lenders charge a 2% set-up fee when the loan is set up. This fee can usually be added to the loan. The fee is sometimes reduced for larger loans.
- Valuation fee – Valuation fees are payable where a valuation is required. The fee generally covers a basic survey of the property. Where heavy refurbishment works are being undertaken, the lender may insist on a more detailed report. Some bridge loan lenders do offer desktop or automated valuations (AVM), there is usually no charge for this.
- Legal fees – You will be required to pay the lender’s legal fees in most cases in addition to your own if you choose to use a solicitor. This is common for bridging loans. These fees vary depending on the size of the loan, the number of properties that you’ll be securing against and the type of property itself.
- Broker fees – Some bridging loan brokers charge fees for their services, either a fixed cost or a percentage of the loan amount, some also charge upfront fees. At ABC we don’t usually charge a fee for our services, however occasionally we may have to and if so, we’ll disclose this upfront, before you submit a bridging loan application.
- Exit fees – Some bridging loan lenders charge an additional fee when the loan is repaid, usually 1-2% of the loan amount. Where possible, we avoid using lenders who charge exit fees.
How do you pay back a bridging loan?
A bridging loan is a short term product and typically requires repayment within 12 months for a residential regulated loan and up to 26 months for an unregulated commercial bridge. Lenders will focus on your repayment or ‘exit’ strategy and this will inform their funding assessment. Ordinarily bridging loans are paid back by the sale of a property, refinancing to a mortgage or the sale of assets such as shares.
Interest on the loan will typically be rolled up and paid when the loan is repaid.
Bridging loans by ABC Finance
Obtaining a below market value bridging loan can be complex. Using a specialist loans broker, such as ABC Finance, means that we can negotiate with lenders to find you the best possible deal.
Getting a quote is easy, our advisors will call you back for a confidential, friendly no-obligation discussion. If you wish to proceed they will help you fill in a simple form to begin searching for the right lender for you. Initial approval can move quickly and in straightforward cases funding can be made available within a few weeks.
Our experts work with a wide panel of lenders and take time to understand your business needs to get you the best deal; our aim is to save you money.
We’ve helped many thousands of people find a loan and our Trustpilot scores and reviews demonstrate how happy our customers are with our service.
