Is purchasing a house below market value a good idea?

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Like all property investors, purchasing a house below market value can be seen as a dream. But there is more detail to the financing of the purchase. While auction properties for example can be 25 – 30% less market value. There are risks that can be equal to or greater than the reward when purchasing from an auction. Beside buying in an auction, generally means some heavy refurbishment will be required to bring the property to get a mortgage.

If by chance you see a house below market value for general sale. There is a good reason that this property is valued lower. Perhaps the owner is financial distressed and needs to sell the property. While this may not be your concern. This is a concern for lenders, as not all of them are prepared to lend to people buying property at less than market value. It’s considered a niche mortgage, as many lenders see it as distressed sale when the property valued at 90% or less than the valuator report. While it’s not impossible to get a mortgage for a BMV, it’s not easy and can lead to long delays getting a mortgage offer. In such cases, it pays to get bespoke advice from a whole-of-market mortgage adviser to help.

As mentioned above with auctions properties, there is a potential work around the mortgage problem. You could purchase the property using a bridging loan and then complete a refurb (eg If required to rent). Finally, you could then approach mortgage lenders to get the property switched to a buy-to-let (BTL). If the BMV is truly below market value, you can still turn a profit with the purchase with the additional step of a bridging loan.

Give us a call to discuss a potential property investment on 01925 711 558

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