Looking beyond purchase price in BMV lending

Below market value (BMV) lending is not about accepting a claimed discount at face value. It is about establishing the property’s genuine value, understanding why that opportunity exists and underwriting the borrower, security, legal position and exit as one complete transaction.

BMV transactions naturally attract attention. A client may be buying a property for substantially less than its apparent value, and the possibility of funding all of the purchase price or potentially more can make the opportunity look compelling.

But the discount is not, by itself, the reason to lend.

For me, the starting question is not simply: “How much below market value is the property?” It is: “What is the property genuinely worth, why is it being sold at this price and does the complete transaction make sense?”

That distinction sits at the heart of why BMV lending has worked well for us at Ascot Bridging Finance.

Different lenders, different approaches

It is important to say from the outset that there is no single correct way to underwrite a BMV purchase.

Some lenders calculate their exposure using the lower of the purchase price and the independent valuation. Other lenders may consider lending against open market value in suitable circumstances. Both approaches are understandable, and each lender will have its own funding model, risk appetite, operational structure and credit policy.

We respect that. A lender choosing to work from purchase price is not necessarily saying that the higher valuation is wrong. It may simply be applying the policy that best suits its own business and funding arrangements.

At Ascot, our model allows us to take a different view. Where we are satisfied that the open market value is genuine and the wider transaction stands up to scrutiny, we can assess our lending against the asset’s value rather than being restricted solely by the price the borrower has negotiated.

A discount needs a credible explanation

Properties can be acquired BMV for perfectly legitimate reasons. A seller may need certainty or speed. The property may require work. It could be an auction or off market purchase, or the vendor may have circumstances that make a quick, dependable transaction more important than achieving the highest possible price.

However, “the vendor says it is worth more” is not sufficient.

We need to understand how the price was agreed, whether the parties are connected, how the property was sourced and what evidence supports the proposed open market value. An independent professional valuation is therefore fundamental. RICS establishes mandatory practices for RICS members carrying out formal valuations, providing an important professional framework for valuation evidence.

The valuation provides the evidence of value, but underwriting gives that evidence context.

We consider whether the stated value is supported by the property’s condition, location, tenure, marketability and comparable evidence. We also want a clear and credible explanation for the difference between value and price.

A genuine BMV opportunity is very different from a transaction where a discount exists only on paper.

The security is the starting point — not the whole answer

We are an asset backed lender, so the quality and value of the security are central to our decision. But strong security does not remove the need to understand the rest of the transaction.

Our underwriting also considers the borrower’s profile and experience, their assets and liabilities, the purpose of the loan, the property strategy and the proposed exit.

The legal and title position matters as well. A transaction at an undervalue can create additional legal considerations, particularly where connected parties or potential insolvency issues are involved. Under section 339 of the Insolvency Act 1986, an individual’s transaction at an undervalue can, in defined circumstances, be challenged following bankruptcy.

That does not make BMV lending inherently unsuitable. It means the legal position needs to be properly understood and managed.

Depending on the circumstances, our documented approach can include obtaining a clear explanation for the discount, considering the vendor’s solvency position and using appropriate indemnity or title protection. Our BMV framework expressly focuses on independent value, the rationale for the transaction, relevant legal protections and a credible exit strategy.

This is also where title insurance, sole representation or dual representation may help progress suitable transactions efficiently, subject to the case, legal advice and jurisdiction.

The exit still has to work

One of the most important points about BMV lending is that equity on day one does not repay a bridging loan.

The exit must still be realistic, evidenced and deliverable.

If the proposed exit is refinance, we need to understand whether the borrower and property are likely to meet the anticipated term lender’s criteria. If the exit is sale, the expected price and marketing period must be credible. There should also be sufficient time and contingency if the original plan takes longer than expected.

That discipline is particularly important in the current market. Recent industry commentary has highlighted lenders placing greater weight on due diligence, realistic timescales and alternative repayment options where a sale does not complete within the expected term.

A strong discount can provide a valuable security buffer, but it cannot compensate for an exit that has not been properly considered.

Why the structure can benefit the borrower

Where the open market value is independently supported and the overall transaction is acceptable, lending against that value can materially change the borrower’s capital requirement.

If, for example, the agreed LTV against the genuine market value produces an advance equal to or greater than the purchase price, a borrower may be able to complete with a reduced deposit or without a traditional cash deposit. Depending on the structure, additional funds may also be available towards legitimate costs, refurbishment or other projects.

That can allow an investor to preserve capital for works, maintain liquidity or pursue another opportunity. It may also improve the return generated on the investor’s own capital.

But those are potential outcomes, not promises. The facility remains subject to valuation, legal due diligence, LTV, fees, interest, structure, borrower circumstances and full underwriting.

A real example

One recent Ascot Bridging case involved a tenanted semi-detached property in Teesside.

The purchase price was £100,000, while the supported current market value was £150,000. We provided a gross loan of £112,500, representing 75% of the current value, with a net advance of £100,458.75. The facility ran for nine months and the proposed exit was refinance.

Because the loan was assessed against the supported current value rather than simply the purchase price, the net advance was sufficient to fund the acquisition. The property required no works, was already tenanted and the borrower was an experienced investor with a strong assets-and-liabilities position.

What made us comfortable was not one isolated feature. It was the combination of the independently supported value, the quality of the asset, the borrower profile, the existing tenancy and the refinance strategy.

That is BMV underwriting in practice: not lending because there is a discount, but understanding why the discount exists and establishing whether the complete case remains sound.