Why Does A Lender Require A Forced Sale Valuation?

If you are considering applying for finance for your business such as a commercial mortgage that is typically secured by a minimum of a first legal charge over the premises to be purchased then the lender will require a valuation of the property. The valuer that is acting on behalf of the lender will provide not only a market value but also what is termed a “forced sale valuation” (FSV).

As part of its underwriting process, a lender will want a forced sale valuation of the commercial premises being offered as security to support a commercial mortgage
A forced sale valuation of the commercial property to be mortgaged will be required by the lender.

Why does the lender ask for a valuation on a forced sale basis? Quite simply, the lender will want to reduce their risk of loosing any money and the forced sale valuation provides the lender with an indication as to what the property may be sold for should it have to repossess and sell the property quickly (say within 3 months) because the borrower has not been able to maintain the repayments on the borrowing.

The lender will usually only be prepared to lend up to a certain percentage of market value (LTV). The percentage of the market value that they will advance may vary between lenders but typically may be in the region of up to a maximum of 70%. A lender would not normally consider advancing in excess of the FSV unless other supporting security is offered such as a personal guarantee from the owner/director supported by say a second mortgage over their private residence.

With so many lenders having different sets of lending criteria, here at Commercial Mortgage Link, we can put you in touch with a finance broker who has an extensive panel of lenders at their disposal who may be able to offer you the support that you require. So, if you are considering some form of finance for your business, why not start the ball rolling today. We look forward to hopefully being of assistance to you and your business.

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