What is below market value bridging?
Below market value (BMV) bridging is a short-term loan for buying a property for less than it is worth, where the lender bases the loan on the open market value rather than the price. Most mainstream lenders lend on the lower of the price and the valuation, so a discount does nothing for your deposit. A value-based bridging lender lets the discount do some of the work.
A worked example in round numbers, for illustration only. A house is worth £400,000. A landlord selling up agrees £320,000 for a quick, certain sale.
- Lender using the price: 75% of £320,000 is £240,000. You need £80,000 plus costs.
- Lender using the value: 75% of £400,000 is £300,000. You need £20,000 plus costs.
The percentages, and how much of the discount a lender will recognise, vary by lender and by case. There is more on how valuation-based lending works in our guide to OMV, BMV and GDV lending.
Can you get a bridging loan with no deposit?
Sometimes, by one of two routes.
The BMV discount. If the discount is deep enough, a percentage of the open market value can equal the purchase price. A property worth £300,000 bought for £225,000 with a loan of 75% of value would need no cash towards the price.
Security over another property. If you own another property with equity in it, the lender can take a charge over that too, and lend across both. This is often called a cross-charge bridge.
It is not possible when the valuer agrees with the price rather than your view of the value, when the discount cannot be explained, when you are buying from someone connected to you, or when you have no other property to offer. Even when the loan covers the price, you still need cash for the arrangement fee, valuation, legal costs and stamp duty. Interest can often be rolled up into the loan; most of the other costs cannot.
How do lenders decide the open market value?
The lender instructs an independent RICS registered valuer, not one you choose. The valuer looks at comparable sales, the condition of the property and the local market, and reports what it would sell for between a willing buyer and a willing seller.
Lenders then put their own limits on top. Many cap how much of a discount they will recognise. Most want a clear reason why the seller is accepting less, such as a landlord selling a whole portfolio in one go, an estate needing a quick sale, or a seller who values speed over price. They also check the recent sale history, because a property bought cheaply and resold quickly at a higher figure is a warning sign. If the story does not hold together, the lender will fall back to lending on the price.
Are bridging loans risky?
People also ask whether bridging loans are dodgy. They are not: bridging is a legitimate, widely used product. But they are expensive and short, and the risks are real.
- Cost. Interest is charged monthly at rates well above a standard mortgage, plus an arrangement fee and sometimes an exit fee. Rolled-up interest is added to what you owe.
- Exit risk. The loan has to be repaid, usually within 12 to 18 months, by refinancing or selling. A refinance can fail if the property values lower than expected, rents do not meet buy-to-let stress tests, or lender criteria change. A sale can take longer or achieve less.
- If the exit fails. Expect extension fees, possibly a higher default rate of interest, and ultimately the lender can take possession and sell the property to recover its loan.
If you are already in that position, our guide on what to do if you cannot repay a bridging loan sets out the options.
Buying a portfolio from a landlord who is selling up
Many landlords are leaving the market, citing tax changes and new rules such as the Renters’ Rights Act. Some would rather sell a whole portfolio quickly to one buyer, at a discount, than sell property by property over a year or more. That is where BMV bridging is most useful: it lets an investor complete quickly, then refinance onto buy-to-let mortgages once the purchase is done.
Lenders will look at each property, the rents and tenancies in place, and whether every property will qualify for the refinance. Our guide to buying a property portfolio covers the wider process.
Some landlords hold their properties in a limited company, and offer to sell the company’s shares rather than the properties. That changes the deal: you inherit the company’s history and liabilities along with its properties, the finance is structured differently, and the tax position changes for both buyer and seller. Get advice from a qualified tax adviser before relying on it; we arrange the finance, not the tax advice. Our guide to share purchase agreements for property explains how the company route works.
Is this bridging loan regulated?
It depends on who will live in the property. A bridging loan is regulated by the Financial Conduct Authority if at least 40% of the property is, or will be, used as a home by you or a close family member. Buying to let to tenants, whether in your own name or through a company, is usually unregulated, so you do not get the protections that come with a regulated mortgage. Our bridging finance page says most lenders go to 75% to 80% of value. On a BMV purchase that percentage is of the open market value, not the price you pay, which is how a loan can cover a larger share of the price without the lender going beyond its usual limits.
Who this page is for. This guide is for investors buying from landlords and portfolio sellers. It is not about buying homes from owners in financial difficulty. Discounted purchases from distressed homeowners, including sale and rent back schemes, are a different and closely regulated area, and not something this page covers.
