Below-market-value (BMV) bridging loans: are more investors using bridging to buy from distressed sellers?

Brokers say a growing number of property investors are purchasing homes using below-market-value (BMV) bridging loans, with some specialist lenders basing the loan on a property’s valuation rather than the price paid.

With most major house price indices showing prices remain flat, experts told Newspage some sellers who are keen for a quick sale are open to accepting lower offers, giving buyers who can move quickly because they have bridging finance in place the upper hand.

But while bridging finance can help experienced investors move quickly and take advantage of discounted purchase prices, securing a property below market value is not without its risks, brokers caution. 

Who sells a home below market value, and is it really a bargain?

Experts warn that not every seller accepting less is in distress, and not every discount is a bargain.

Hannah Vandervennin, Director at Erith-based The Mortgage Consultancy, which specialises in BMV bridging loans, commented: “Demand is rising. In our enquiries, landlords exiting and selling portfolios are the most common source of opportunities.

"Bridging lets investors offer speed and certainty, which can help secure a discount. But buying cheaply is not always buying below market value. 

"A valuer will ask: is it below market value, or is that what the market decided? Some lenders use a higher supported valuation to size the loan, reducing the buyer’s cash contribution.

"Bridging can also buy time to unlock value through lease extensions or title splits, but that uplift still needs to be delivered.

"The danger is an inflated valuation underpinning the exit. If the refinance falls short, investors may need extra cash or leave more money tied up, derailing their next purchase. 

"Complex markets call for creative solutions. Bridging is one, provided the discount survives the interest, fees and a realistic exit.”

A discount achieved via a BMV bridging loan doesn't guarantee a sale

Tony Sanchez, Founder at Bridging Loan Directory, a publication dedicated to bridging loans and specialist property finance, said: “We’ve covered below-market-value products and purchases on Bridging Loan Directory, including MS Lending Group’s product launch and a recent £370,000 loan from District & County Investments (DCI) that matched the purchase price of a property in Luton.

"Those examples show how funding can work, but they don’t tell us whether distressed sales are increasing. 

"A seller accepting less for a quicker completion isn’t necessarily in financial difficulty, and a reduction from an asking price doesn’t automatically make a property a bargain.

"For buyers, the important figure is how much cash they still need after interest and fees, alongside tax and any refurbishment costs.

"Lenders take different approaches to purchase price and valuation, so that needs checking before committing.

"Buying at a discount can help the numbers, but it doesn’t guarantee a successful sale or refinance. The repayment plan still needs to stand up.”

Will a lender fund a below-market-value bridging loan?

Some lenders will fund most of the purchase price, experts say, but only where the discount is genuine.

Adam Stiles, Managing Director at London-based Helix Financial Partners, said: “Below market value is always open to interpretation, but when it comes to significant improvements or changes to a property (splitting of titles on a multi-unit freehold block, extending a lease for example), you can sometimes find bridging lenders who will do 90%-100% of the purchase price or 75% of the Open Market Value, whichever is lower.

"This is the gross amount however. The net will be lower when you take into account typically 12 months of retained or rolled interest.

"This does allow extremely advantageous opportunities for investors to buy with minimal cash, but it needs to be a true below market value transaction. It can't just be that the vendor is in a rush to sell.

"We are seeing clients offer people whose properties have been on the market for a very long time a discounted offer on the promise of moving very quickly.

"This tactic has seen some results, and the investors see the bridging interest as the cost of securing properties at a good price.”

Bob Singh, Founder at Uxbridge-based Chess Mortgages, said: “As a bridging and development finance specialist, we are seeing and expect to see more situations where distressed or motivated sellers are prepared to ditch their portfolios for up to 40% below the recent market value, even at auction.

"This discount represents an opportunity for have-a-go investors to make their money go further by utilising all or part of the discount as a deposit. 

"Some short-term lenders lend money based on the value and not the purchase price so it’s not uncommon to acquire a buy-to-let property with just 10% down. 100% is reserved for applicants with significant assets behind them.

"But bridging loans aren’t simple and they’re not cheap. You’ll need to account for arrangement fees, retained interest, valuation fees as well as legal fees for both sides.

"And then there’s the exit. Sale or refinance means more fees so make sure you do the sums.”

What does a below-market-value bridging loan really cost?

Experts warn that although below-market-value bridging finance can reduce the cash needed to secure a property, the true cost of borrowing and the risks of an unsuccessful exit strategy can quickly chip away at any potential profit.

Nouran Moustafa, Practice Principal at Roxton Wealth, said: “The attraction of below-market-value bridging is obvious: buy at a discount, complete quickly and potentially borrow against the property's higher market value.

"But investors need to understand that not every lender accepts this approach. Some lend against the lower purchase price, while others consider an independent valuation where the discount is genuine and evidenced.

"Distressed sales, probate and sellers needing a quick completion can create opportunities, but unusually large discounts also raise questions about the transaction.

"On a £200,000 bridge at 0.75% monthly interest, 12 months costs £18,000 in simple interest alone. Add a 2% arrangement fee, £1,000 valuation and 1% exit fee, and that's £25,000 before legal costs. 

"My biggest concern isn't securing the bridging loan. It's whether the investor can actually repay it.

"A discount means very little if the refinance fails and extension fees or forced-sale losses swallow the profit.”

Your questions answered

Questions answered by Hannah Vandervennin, Director and Mortgage Adviser at Erith-based The Mortgage Consultancy.

What is a below market value property?

A below market value property is bought for less than it would reasonably sell for on the open market in its current condition. For example, if an independent valuation supports a value of £300,000 and the agreed purchase price is £240,000, the buyer is purchasing at a 20% discount. Reasons can include a seller prioritising a quick, certain completion or a landlord selling a portfolio, among other circumstances. The discount must be against the property’s value today, taking account of its condition and legal position, rather than an optimistic asking price or what it could be worth after improvements.

How do you prove a property is below market value?

The strongest evidence is an independent valuation supported by comparable completed sales, taking account of condition, location, tenure and any restrictions. The lender will also want to understand why the seller has accepted a lower price. A credible explanation and supporting documents matter more than an estate agent’s asking price or an investor’s estimate. You must compare like with like: a flat with a short lease cannot simply be valued against one with a long lease without adjustments. Ultimately, the lender must accept both the valuation and the transaction under its own lending criteria.

Can you buy a property with no deposit using a bridging loan?

Sometimes, but “no deposit” should never be confused with “no money needed”. Certain lenders may fund the full purchase price where there is sufficient acceptable security, potentially including equity in another property. A supported valuation above the purchase price can also reduce the cash contribution with some lenders, although many apply purchase-price limits. Interest and fees may be deducted from the advance, leaving less available to complete. Buyers must also account for legal fees, tax and any works. The important figure is the net cash available against the total transaction costs, rather than the headline loan amount.

How quickly can a bridging loan be arranged?

A straightforward bridging loan can sometimes complete within days, but buyers should normally plan in weeks rather than assume an immediate turnaround. Speed depends on the lender, valuation, legal work, ownership structure and how quickly everyone supplies the required information. Title issues, lease problems or complex transactions can extend the timetable. Having identification, proof of funds, property details and a clear repayment plan ready helps the process. An initial lending decision is also different from funds being ready to draw. If a purchase has a fixed deadline, involve the broker and solicitor early so they can assess whether it is achievable.

What is a bridging loan exit strategy?

An exit strategy is the plan for repaying the bridging loan, including interest and fees, usually through a sale or longer-term refinancing. It needs to be realistic before the bridge is arranged. For refinancing, that means checking the intended lender’s requirements, rental affordability and likely valuation. An inflated market value or projected end value can leave an investor needing additional cash or keeping more money tied up than expected. For a sale, the price and timetable need to be achievable. There should also be a contingency if either route takes longer or produces less money than planned.