Bridging loans provide fast financing solutions for property purchases, renovations, and business opportunities.
A key aspect of securing a bridging loan is the property valuation process. Traditionally, lenders have relied on physical property valuations to assess risk and determine loan terms.
But is a physical valuation always necessary?
With the UK bridging loan market reaching nearly £8.4bn in Q2 2024, lenders are adapting their practices to meet the growing demand for faster, more flexible financing options.
How might a property valuation affect your bridging loan application? Let’s explore the specifics of valuations in bridging finance and uncover some modern alternatives that might surprise you.
Why Lenders Require Valuations
Property valuations are a cornerstone of risk assessment for all secured lenders.
By accurately determining a property’s value and condition, lenders can calculate appropriate loan-to-value (LTV) ratios and set suitable interest rates and terms.
Consider a property developer seeking a £500,000 bridging loan to purchase and renovate a Victorian townhouse in West London. A thorough valuation confirms the current market value and assesses the property’s potential post-renovation. This information helps the lender decide whether the loan represents a sound investment.
Types of Valuations Used
Bridging finance lenders employ various valuation methods, each suited to different circumstances:
- Full physical valuations: A surveyor inspects the property inside and out, providing the most comprehensive valuation.
- Drive-by valuations: The surveyor assesses the property’s exterior and the surrounding area, suitable for lower-risk loans.
- Desktop valuations: Using available data and local market knowledge, valuers estimate the property’s worth without a site visit.
- Automated Valuation Models (AVMs): Computer-generated valuations based on statistical data and algorithms.
In the UK, the Royal Institution of Chartered Surveyors (RICS) sets stringent standards for property valuations, ensuring accuracy and reliability across the industry.
When is a Valuation Required?
While practices vary among lenders, certain situations almost always call for an on-site valuation:
- High-value properties: Loans exceeding £1 million typically require a full physical valuation due to the increased risk.
- Complex or unique properties: Listed buildings, unusual constructions, or properties with specific planning restrictions often need expert assessment.
- Development projects or heavy refurbishments: Lenders need to understand both the current value and the projected value upon completion.
For example, a £2 million bridging loan for a Grade II listed building conversion in Blackheath would likely require a detailed valuation to assess the property’s current condition, renovation potential, and any restrictions that might affect the project.
Factors Influencing Valuation Requirements
Several factors determine whether a lender will insist on a valuation:
- Loan amount and LTV: Higher loan amounts or LTV ratios increase the lender’s risk, often necessitating an in-person valuation.
- Property type and location: Prime central London properties might undergo more scrutiny than a standard residential property in the suburbs.
- Borrower’s profile and experience: Experienced developers with a strong track record might face less stringent requirements.
- Lender’s risk appetite: Some lenders specialise in higher-risk loans and may have more flexible valuation policies.
Desktop Valuations and AVMs
The bridging finance industry is increasingly embracing technology-driven valuation methods.
Desktop valuations and AVMs (automated valuation models) offer speed and cost-effectiveness, particularly for straightforward residential properties.
These methods work by analysing vast amounts of data, including recent sales, local market trends, and property characteristics. While they may lack the nuanced assessment of a physical inspection, they can provide a quick and reasonably accurate valuation in many cases.
For example, an AVM valuation for a standard three-bedroom house in Greenwich can be completed in minutes rather than days, allowing the loan process to move forward rapidly.
Bridging Loans Without Physical Valuations
At Bridging Finance London, we work with lenders who can secure funding using only desktop valuations and AVMs for residential properties up to 70% LTV.
This innovative approach allows deals to progress to the legal stage on the same day, significantly speeding up the borrowing process.
It’s particularly beneficial for time-sensitive transactions or preventing property chain collapses.
Read more: What is an Automated Valuation Model (AVM)?
How Valuations Impact Your Bridging Loan
The valuation plays a pivotal role in determining your loan terms:
- It sets the maximum loan amount based on the agreed LTV ratio.
- The valuation can influence interest rates, with lower LTV ratios potentially securing more favourable rates.
- For development projects, the projected end value affects both the loan amount and the viability of your exit strategy.
Dealing with Valuation Discrepancies
If the valuation comes in lower than expected, you have options:
- Negotiate with the lender for a higher LTV ratio if your circumstances allow.
- Consider challenging the valuation if you believe it’s inaccurate. Provide evidence of comparable sales or unique property features that might justify a higher value.
- Explore alternative financing solutions to make up the shortfall.
Remember, we have access to over 250 lenders, including private banks and wealthy individuals. This extensive network allows us to find creative solutions even in challenging valuation scenarios.
While property valuations remain a key component of many bridging loan applications, the industry is evolving.
The availability of desktop valuations, AVMs, and even no-valuation options for certain loans is transforming the borrowing process, making it faster and more efficient.
Whether you need a traditional valuation or qualify for a streamlined process, understanding the role of valuations in bridging finance can help you navigate your borrowing journey more effectively.
For personalised advice tailored to your unique situation, contact our expert team at Bridging Finance London. We’re here to guide you through every step of securing your bridging loan, ensuring you get the best possible terms in the quickest time-frame.
