What Does VPV Stand For In Commercial Mortgages?
The acronym ‘VPV’ is an abbreviation that stands for Vacant Possession Valuation. It is most commonly used in the commercial finance industry when referring to the value of a commercial building that produces income. The VPV is the assumed value (usually calculated by a surveyor) of a building if the tenant(s) is not there.
The vacant possession value is usually lower than the market value or investment value (with income producing tenant in situ). It takes into account the potentially difficulty in replacing a tenant or cost to convert the space into other usages.
When applying for a Commercial Mortgage its important to understand what valuation method any potential bank or lender is using. This can effect the amount of money they are willing to lend against a commercial investment property.
Click here to find out more about Commercial Mortgages and Apply.
Click here to find out more about Bridging Loans and Apply.
Why Vacant Possession Value Matters When You Are Borrowing
On a trading business such as a pub, hotel, care home or day nursery, a valuer normally produces two figures. One is a going concern value based on the profits the business makes. The other is the vacant possession value, based on the empty building with the trade gone. Lenders apply the loan to value to whichever of the two is lower, and that is almost always the vacant possession value.
This is why a care home or pub trading profitably can still only support a modest loan. You are borrowing against the bricks rather than the business. It is also why lenders care so much about operator experience: they are underwriting the risk that the trade stops and they are left holding the vacant building.
On a let commercial investment the same logic applies in reverse. A long lease to a strong tenant pushes the investment value well above the vacant possession value, and a short unexpired term pulls the two figures together. Our commercial mortgage broker page sets out lender appetite and typical loan to value by property type.
Apply For Property Finance Today
Fill in the form below and one of our independant property finance brokers will be in touch.