Property Price vs Market Value: Does Buying Below Value Work?
September 24, 2026
If I buy a property for £135,000, does that automatically mean it is worth £135,000? And if house prices have fallen after inflation, does that prove every landlord who owned property during that period lost money?
Those were two of the arguments behind a comment on my recent portfolio-building video. The commenter thought the example was unrealistic. Rather than dismiss the criticism, I wanted to work through it, because it raises useful questions about purchase price, valuation, borrowing and investment returns.
I’ve been investing in UK property for around 15 years and own more than £3.5 million worth of property. My view is that price and value are related, but they’re not always identical. That doesn’t mean every advertised discount is real, or that a lender will immediately let me borrow against the valuation I prefer.
You can also watch my response to the property-investing criticism.
Purchase price and market value measure different things
Purchase price is the amount agreed in a particular transaction. Market value is an assessment of what the property would be expected to achieve under the relevant valuation assumptions. The agreed price is evidence, but the circumstances of the sale and comparable properties matter too.
Property isn’t an exchange on which perfectly identical assets trade every second. Houses differ in condition, layout, legal position and location. Sellers also have different priorities. Some place a high value on speed or certainty; others are happy to wait for a higher offer.
In the video, I use a deliberately extreme example: a house supported by £1 million comparable sales is transferred for a tiny amount because the owner needs money immediately. The unusual price doesn’t automatically make every similar house on the street worth that amount.
That example illustrates a principle, not a realistic acquisition plan. A transaction far below apparent value can raise legal, tax, financing and other questions. For an ordinary investment, I still need evidence that the property is comparable and that there isn’t a reason for its lower price.
A reduction from the asking price proves very little
The commenter also asked whether buying a house advertised at £300,000 for £250,000 creates £50,000 of equity. My answer is that the asking price alone doesn’t tell me.
If comparable houses are selling for £250,000, the seller may simply have started too high. Negotiating £50,000 off an ambitious advert could bring me back to fair value rather than create an investment advantage.
If genuinely comparable properties have recently sold for around £300,000 and the seller accepts £250,000 because of their circumstances, there may be a real gap between price and value. Even then, I need to allow for differences in condition, tenure and anything else that affects what a buyer would pay.
The evidence has to lead the conclusion. I don’t start with the return I want and then choose a valuation that makes the spreadsheet produce it. My approach to buying below market value depends on understanding the property before deciding what represents a discount.
The lender’s decision is a separate question
In my original worked example, the property is bought for £135,000 with a 75% loan-to-value mortgage. The loan is £101,250 and the deposit is £33,750. The calculation already uses the purchase price, not an immediate £150,000 mortgage valuation.
That matters because the criticism mixed two questions together. One is whether I may have bought an asset for less than its market value. The other is how much a bank will lend at that moment. I can believe the first without assuming the second follows automatically.
A valuation for lending serves the lender’s requirements, and its policies can restrict what it will advance. My own opinion of the house doesn’t create a right to a larger mortgage. The finance offer has to be considered on its actual terms.
In the video, I discuss reviewing a refinance after around two years. That is a point at which I might investigate the options, not a guarantee that waiting makes the higher valuation available. I still need a valuation, rent that supports the borrowing and a lender prepared to offer it.
Paper equity isn’t cash in your account
If I buy for £135,000 and the property is supportably worth £150,000, the £15,000 difference is an estimated equity advantage before costs. It isn’t a separate bank balance and it isn’t rental income.
Selling would involve its own costs, timing and uncertainty. Refinancing would involve new borrowing, fees and lending requirements. Those are different ways of accessing value, with different consequences.
This is why I describe the money released through refinancing as borrowed money. It can help fund another investment, but the debt against the first property rises. The fact that some original cash comes back doesn’t remove exposure to that mortgage or make the remaining investment risk-free.
My worked portfolio-building example follows those movements in detail. Keeping purchase costs, rental cash and refinance proceeds separate makes the strategy easier to understand and much harder to oversell.
Five per cent growth is a scenario, not a promise
The second criticism concerned the 5% annual growth assumption in the model. If I had promised that UK house prices would rise exactly 5% every year, that would deserve criticism. I don’t know next year’s price movement, and neither does anyone making a confident comment underneath a video.
A forecast needs assumptions so that we can see how the investment behaves. But one chosen assumption shouldn’t become the only outcome we examine. The practical use of the model is to change the inputs and see what breaks or becomes less attractive.
On a £150,000 starting valuation, two years at 5% produces £165,375. At 2%, it produces £156,060. At zero growth, it remains £150,000. If values fall, the result is lower still. Those are straightforward scenarios, not probabilities assigned to the future.
The difference affects potential refinancing, but it doesn’t tell the whole story. Rent, costs, tax and mortgage availability also matter. A model that assumes strong capital growth while ignoring a higher interest bill can make a fragile deal look comfortable.
Inflation can reduce the real value of a rising house price
The commenter was right to raise inflation. A house can increase in pounds while losing purchasing power. If general prices rise faster than the property’s price, the real value of the property falls.
In the video, I use a comparison of roughly £198,000 and £273,000 over ten years, alongside approximately 42% cumulative inflation. The official July 2026 UK House Price Index release reports the latest average at about £273,000, but a national index is not a valuation of a particular house.
Using the video’s rounded comparison, a rise of around 37.6% against roughly 42% inflation means a small decline in real property value. The calculation divides the price-growth factor by the inflation factor; it doesn’t simply subtract annual inflation rates from one another.
The exact result depends on the consistent data series, dates and revisions used. I treat the example as an explanation of the distinction, rather than a claim that every property or investor experienced the same real return. My article on UK house prices in real terms discusses the wider question.
The house’s return isn’t the investor’s equity return
Now consider borrowing. Using round numbers, imagine buying a £198,000 house with £49,500 cash and a £148,500 interest-only mortgage. If the property later reaches £273,000 and the principal hasn’t changed, equity before costs is £124,500.
The house has risen by £75,000. Because the mortgage principal in this illustration stays the same, that increase is reflected in the owner’s equity. The percentage increase on the original £49,500 is therefore much larger than the percentage increase in the whole property’s value.
Adjusting £124,500 by an illustrative 42% cumulative inflation factor gives approximately £87,676 in starting-period purchasing power. Compared with £49,500, that is an equity increase of roughly 77% in real terms under these rounded assumptions.
This is the mechanism I wanted to explain in the video. A modest real decline in the property price can coexist with a real increase in the leveraged owner’s equity. But this is an equity illustration before acquisition costs, finance costs, tax, selling costs and any other cash paid in. It isn’t a complete investment return.
Leverage magnifies losses as well as gains
The same mechanism can hurt. If the £198,000 property fell by 10%, its value would decline by £19,800. With the £148,500 principal unchanged, equity would fall from £49,500 to £29,700 before costs: a 40% reduction in the original equity.
That is why the positive example cannot prove that borrowing always improves an investment. It changes the exposure. You still need to service the mortgage and survive difficult periods without being forced into an unfavourable sale.
Rental income also needs careful treatment. Ten years of rent isn’t ten years of profit. Interest, management, maintenance, voids, insurance, tax and capital work can absorb substantial amounts. The rental-profit estimate mentioned in the video is an illustration, not a verified return for an actual property held throughout that decade.
A fair comparison would track the timing of every cash contribution and withdrawal, together with the remaining value and liabilities. That is more work than reading a house-price chart, but it is much closer to the investment decision we’re trying to assess.
What I take from the criticism
I don’t think challenging an assumption is a problem. It’s useful. If a model depends on a valuation that can’t be supported, guaranteed growth or refinancing that may not be available, those weaknesses should be visible before anyone commits money.
Where I disagree is the leap from “some assumptions need testing” to “the whole strategy cannot work”. Buying well, collecting rent and using borrowing carefully can create opportunities. None of those advantages means every deal is good or every investor will make money.
If you’d like to discuss your own numbers, book a free 30-minute strategy call, explore the Starter Club or the Done For You service. I want a plan that can explain where its return comes from and what happens when its assumptions are wrong. That’s a much stronger starting point than either blind optimism or dismissing every opportunity.