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In today’s specialist lending market, small changes in lender criteria can unlock significant opportunities for property investors. One such change is a lender assessing commercial and semi‑commercial mortgages based on market value rather than vacant possession value.
While this may sound like a minor technical adjustment, the impact on loan‑to‑value (LTV), pricing, and borrowing power can be substantial.
This case study highlights how the right valuation approach made a measurable difference for a client purchasing a semi‑commercial, income‑producing property.
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Understanding the Difference Between Market Value & Vacant Possession
When assessing a commercial or semi-commercial property, valuers typically provide more than one figure within the valuation report.
These are:
Vacant Possession Value (VP)
Vacant possession value reflects the property’s worth assuming it is empty, with:
- No tenants in occupation
- No rental income
- No lease agreements in place
As it ignores income, VP is considered a more conservative valuation and is often lower than market value.
Market Value (MV)
Market value represents the price the property would likely achieve on the open market, taking into account:
- Existing tenancy agreements
- Current rental income
- The property’s use as an investment asset
For income‑producing commercial property, this is often the more realistic reflection of value.
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The Challenge for Commercial and Semi‑Commercial Borrowers
For most lenders, they will only lend against the VP value, however this can restrict borrowing because:
- VP is often lower than MV
- Loan to value (LTV) ratios are calculated against a lower figure
By changing criteria to lend against the market value figure, lenders can offer a more realistic assessment of an income producing asset which often results in high borrowing for the client.
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Semi-Commercial Mortgage Case Study: Real-Life Example
I recently arranged a mortgage for a client purchasing a semi-commercial property.
Property Valuation:
- Market Value (MV): £335,000
- Vacant Possession Value (VP): £315,000
Loan Required:
- £210,000
Loan Assessment Comparison
Using Market Value:
- LTV = 62.7%
- Falls within a ≤65% LTV bracket
- Access to more competitive interest rates due to the lower LTV
Using Vacant Possession Value:
- LTV = 66.7%
- Exceeds the maximum 65% threshold
- Would push the client into a higher pricing tier
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The Result
Because the lender assessed the loan against the market value rather than the vacant possession value, my client:
- Stayed within the preferred LTV bracket, therefore saving my client £7,273 in payments over the 5-year fixed period
- Secured a more competitive semi-commercial mortgage interest rate
- Avoided unnecessary increases in borrowing costs
This case highlights how small differences in lenders criteria can have a big impact for our clients.
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Client Feedback
“Megan is amazing to work with. Fast, clear communication, she found the best deal for my situation and took control of the whole process. She made the experience easy and pretty much stress free. Thank you so much. Looking forward to the next one with you.”
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