FAQ: Below Market Value Bridging loans Frequently Asked Questions
How Do Below Market Value Bridging Loans Work?
For borrowing purposes below market value bridging loans are calculated using the open market value of the property or land being used as security rather than the traditional method of borrowing against the purchase price.
Why are Below Market Value Bridging Loans Popular?
The below market value bridging loan strategy is popular with developers and investors when buying property or land where the purchase price has been negotiated and agreed with a discount below the actual open market value. This can allow borrowing up to 100% of the below market value purchase price.
What Does Open Market Value Mean?
Open Market Value is, in the opinion of the valuer, the probable price which a property would be expected to achieve in an open fair sale arm's length transaction and is the estimated amount that a property would sell for between a willing buyer and a willing seller on the date of the valuation.
Is Bridging Finance a Short-Term Solution?
Generally, bridging finance is available for periods of 3 months to 24 months, however some lenders don't have a minimum interest period, so effectively the bridge loan could be repaid within one month.
Do I Need a Bridging Finance Exit Strategy?
Yes, all bridging finance lenders will require an acceptable exit strategy to be in place, this provides confirmation and satisfies the lender on how you intend to repay your bridge loan at the end of the term, an experienced broker will be able to guide you on this. Below are a couple of acceptable exit strategies.
Sale of Property Exit.
Property developers and investors can use bridging finance when buying a house with the plan of reselling it as soon as it has been renovated and sold, in which case the bridge loan will be repaid in full from the proceeds of the sale of the property.
Buy to let Mortgage Exit.
This type of exit is popular with property developers, landlords and investors whose intention is to retain the property as a buy to let investment, the bridging loan is used for the acquisition and refurbishment of the property and the property is then rented out, the property is then refinanced with a buy to let mortgage against the new higher valuation which repays the bridging loan.
How do I Apply for a Below Market Value Bridging Loan?
Most bridging loan lenders generally require applicants to submit their applications through an experienced broker who can help guide you through the process.
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Unlocking Potential: The Power of Below Market Value Bridging Loans
In the dynamic world of property investment, savvy investors are always on the lookout for opportunities to maximize their returns. One such opportunity arises from the acquisition of properties priced below their true market value. This is where Below Market Value (BMV) bridging loans come into play, offering a strategic advantage for those quick to act.
What is a BMV Bridging Loan?
A BMV bridging loan is a short-term financing solution designed for property transactions where the purchase price is significantly less than the property's open market value (OMV). These loans are particularly useful for investors aiming to buy, refurbish, and quickly sell properties at a profit.
The Mechanics of BMV Bridging Loans
A BMV bridging loan is a short-term financing solution designed for property transactions where the purchase price is significantly less than the property's open market value (OMV). These loans are particularly useful for investors aiming to buy, refurbish, and quickly sell properties at a profit.
Advantages for Property Investors
Increased Leverage: By basing the loan amount on the OMV, investors can often borrow more than the purchase price, reducing the amount of personal capital required.
Speed: BMV bridging loans can be arranged quickly, allowing investors to capitalize on time-sensitive deals.
Flexibility: These loans are typically interest-only, with the principal repaid at the end of the term, providing investors with flexibility in managing cash flow.
Profit Potential: Purchasing a property below its market value inherently carries a higher margin for profit, especially after value-adding renovations.
Considerations and Risks
While BMV bridging loans offer attractive benefits, investors must also be aware of the risks. The short-term nature of the loan means higher interest rates, and the reliance on a swift sale or refinancing requires a clear exit strategy. Additionally, accurate valuation of the property's true worth is crucial to avoid over-leveraging.
Conclusion
BMV bridging loans are a powerful tool for property investors, enabling them to make bold moves in the market. With the right property and strategy, these loans can unlock significant potential and yield substantial returns. As with any financial decision, it's essential to consult with financial experts to navigate the complexities of BMV financing.
I hope you find this article insightful and informative. If you're considering such an investment, it's always prudent to seek professional advice to ensure it aligns with your financial goals.
