What is a Below Market Value Bridging Loan?
In the fast-paced world of property investments, time is often of the essence. Whether you’re buying a property at auction, seeking to refurbish a building quickly, or looking to take advantage of an opportunity to acquire a property below its market value, access to immediate financing is crucial. This is where bridging loans, especially a Below Market Value Bridging Loan (BMV Bridging Loan), plays a crucial role, enabling savvy investors to capitalize on profitable opportunities when properties are priced below their full market value.
This article will provide a comprehensive overview of what a BMV Bridging Loan is, how it works, its benefits, and why investors find it a valuable financial strategy. We’ll also explore how Evolve Finance, a leading specialist in property finance, can provide the flexible and tailored financing solutions needed to make the most of these opportunities.
Understanding Below Market Value (BMV) Properties
To fully grasp what a Below Market Value Bridging Loan entails, it’s first important to understand the concept of below-market value properties. As the name suggests, these properties sell for less than their current market value. There are numerous reasons why a seller might offer a property at a lower price:
Urgency to Sell: The seller may need to free up cash quickly, due to financial pressure, a divorce settlement, relocation, or other urgent situations. This often creates a situation where they are willing to accept offers below market value to ensure a fast transaction.
Property Condition: The property may require significant refurbishment or repairs, which lowers its current market value but presents an opportunity for an investor to improve it and sell or rent it for a higher price later.
Distressed Sales: Properties sold at auctions, repossessions, or probate sales often come with price tags below market value because the sellers are looking for a quick sale rather than holding out for the highest offer.
Off-market Deals: Sometimes, off-market deals present opportunities to buy properties without the competition of an open market, allowing for a lower purchase price. For property investors, securing a BMV property means they are essentially acquiring an asset with built-in equity. However, despite the significant long-term value such properties can offer, the need for quick financing remains a challenge — and this is where BMV Bridging Loans come into play.
What is a Below Market Value Bridging Loan?
Below Market Value Bridging Loans are short-term financing solutions designed specifically for the purchase of properties that are available at less than their full market price. These loans are typically secured against the property being purchased and offer the investor a way to quickly access the funds required to close the deal. The loan is designed to “bridge the gap” until the property is either resold, refinanced with a traditional mortgage, or developed for rental income.
Key characteristics of a BMV Bridging Loan include:
Short-term: Typically, bridging loans are issued for a period ranging from a few months to 24 months, giving investors the flexibility to complete their purchase, make any necessary refurbishments, and then either sell or refinance.
Fast Approval: Speed is a critical element when securing a BMV property, as there’s often a risk of losing the deal to other buyers or seeing the seller move on. Bridging loans can often be approved within days, making them an ideal solution for time-sensitive transactions.
Higher Loan-to-Value (LTV) Ratios: While traditional lenders base their lending on a percentage of the purchase price, bridging lenders may be willing to offer a higher LTV based on the actual value of the property.
Additionally it is possible to offer another property that you may already own as additional security to allow borrowing up to 100% of the purchase price as well as a contribution to any purchase and refurbishment costs.
Interest-Only Payments: Most bridging loans are structured as interest-only, meaning the borrower only pays interest during the loan term and repays the principal once the loan term is over, or once they’ve sold or refinanced the property.
In the case of a Below Market Value Bridging Loan, the lender will typically calculate the loan based on the true market value of the property, rather than the reduced purchase price. This means that investors can often borrow a significant portion (or even the entire amount) needed to purchase the property, sometimes without needing to contribute much, if any, of their own funds upfront.
Example of How a BMV Bridging Loan Works
Let’s consider an example of how a BMV bridging loan might work:
Market Value of Property: £500,000
BMV Purchase Price: £400,000
Required Refurbishment Costs: £50,000
Expected Post-Refurbishment Value: £600,000
In this scenario, an investor could use a BMV bridging loan to borrow up to 70-80% of the property’s full market value (e.g., £500,000) — which could cover both the purchase price of £400,000 and some or all of the refurbishment costs. The investor could then sell the property at its improved value (£600,000), repay the loan, and realise a profit.
Key Benefits of Below Market Value Bridging Loans
Maximise Leverage: Since lenders are typically more focused on the asset’s full market value rather than just the purchase price, investors can maximise their borrowing potential. In some cases, this means no upfront capital may be required from the investor at all, allowing them to stretch their available funds across multiple deals.
Speed of Funding: Traditional mortgages can take months to process, which is too long when trying to secure a BMV property. Bridging loans, however, can often be arranged in a matter of days, enabling investors to act quickly on opportunities.
Increased Profit Potential: By securing a property at a discount, investors can create substantial profit margins once the property is sold or refinanced at full market value. The short-term nature of a bridging loan ensures that investors can take advantage of this potential swiftly.
Flexible Use: A BMV bridging loan can be used for a wide range of purposes, including auction purchases, refurbishment projects, property flips, or securing investment opportunities that require fast action.
No Long-term Commitment: Because bridging loans are designed as a short-term financial solution, there is no long-term commitment. Investors can exit the loan by selling the property, refinancing with a traditional lender, or even renting out the property once improvements have been made.
Financing Options for Below Market Value Bridging Loans
The financing landscape for BMV bridging loans can be complex, as not all lenders are willing to offer loans based on a property’s true market value rather than the discounted purchase price. Furthermore, lenders typically want to ensure that the borrower has a clear exit strategy in place, such as a plan to sell or refinance the property once the loan term is complete.
This is where working with a specialised finance brokerage like Evolve Finance can make all the difference.
Evolve Finance: Your Partner in BMV Bridging Loan Financing
Evolve Finance is a leading provider of specialist property finance solutions, with a particular focus on bridging loans for Below Market Value properties. With extensive expertise in the property finance sector, we understand the unique challenges faced by investors and tailor our lending solutions to meet the needs of the investor.
Here’s how Evolve Finance can help:
Fast and Flexible Funding: We offer fast approval processes, ensuring you can secure the funds needed to act quickly on your investment opportunity.
Tailored Loan Structures: Whether you’re purchasing a property for refurbishment, auction, or any other purpose, we work with you to create a loan structure that fits your strategy.
Expert Guidance: With in-depth knowledge of the BMV property market, we provide valuable advice and support throughout the loan application process.
Clear Exit Strategies: The team at Evolve Finance works closely with investors to ensure that a solid exit strategy is in place, whether through property sale, refinancing, or rental income.
Reach out and give us a call: With a reputation for providing fast, flexible, and tailored finance solutions, Evolve Finance is the perfect partner for investors looking to make the most of Below Market Value property opportunities.
Conclusion
A Below Market Value Bridging Loan is a powerful financial tool for investors seeking to capitalise on discounted property deals. With the ability to access funds quickly and efficiently, bridging loans allow investors to secure BMV properties, refurbish them, and exit the loan either through a sale or refinancing. Working with an expert brokerage like Evolve Finance ensures that you receive the tailored support, guidance, and financing solutions needed to make the most of your property investments.
If you’re looking to take advantage of Below Market Value property opportunities, reach out to Evolve Finance today to explore how they can provide the funding and expertise you need to succeed.