How below-market-value lending works
Suppose a property is worth more than you are paying. A lender that lends on the lower of price and value will base its loan on the price. A lender that lends on market value bases its loan on the higher figure, but most cap the loan at a percentage of the price, for example 90% of the purchase price, so some of your own money is still in the deal.
On our panel, several lenders state that they lend on open market value or consider below-market-value purchases, usually up to a stated share of the purchase price. Others will lend more against the price only with additional security.
Why lenders want a clear reason
Lenders and valuers look carefully at discounted purchases, because an inflated valuation or an artificial discount is a known fraud risk. They will want to understand why the seller is accepting less, for example:
- A probate sale where executors want a quick, certain completion
- A repossession or receivership sale
- A seller needing to move quickly for work, health or financial reasons
- An auction where bidding closed below the valuation
- An option or pre-agreed discount with a documented history
Back-to-back and sub-sale arrangements, where a property is bought and sold on immediately at a higher price, attract particular scrutiny. Lenders will want the full chain of transactions disclosed.
Planning the exit
The discount only helps at the exit if the refinance lender or buyer also recognises the market value. Many buy-to-let lenders lend on the purchase price for a period after you buy, often six months, which can leave a gap if you refinance early. Check the refinance lender's rules before relying on the uplift.
We compare lenders on how they treat below-market-value purchases, their price caps and the exit, then approach those that fit with a clear case. Instant Quotes lets you give both the price and the market value, as a starting point. Final terms depend on each lender's valuation and checks.
If you or your family will live in the property
If the borrower is an individual or the trustees of a trust, and the property is, or will be, lived in by you or a close family member, the loan is a regulated mortgage contract with additional protections. We will tell you at the outset if that applies and how your case will be handled.
Your home or property may be repossessed if you do not keep up repayments on a mortgage or any other debt secured on it.
