Cash Value & Lending Basis: The Number Banks Run On

A deal can close at whatever price two parties agree on. The lending cannot. When a bank or a mortgage institution is to extend a loan against a property, they do not run the numbers on the agreed purchase price — they run them on the property’s cash value. That is the figure that sets the ceiling for how much can be borrowed, and it is rarely identical to what appears in the purchase agreement.

The difference is not academic. If you buy at a price above the lending basis the credit provider arrives at on its own, the gap has to be covered with equity. That can topple an otherwise sound deal at the last moment. So it is worth understanding what a property’s cash value actually covers, how an independent value indication is substantiated, and which documentation holds up when a credit department stress-tests the figure.

Cash value, lending value and sale price are three different things

In everyday speech the terms blur together, but the three figures each serve a distinct purpose:

• The sale price is what the parties agree on. It depends on negotiation, timing and how motivated buyer and seller are — and can therefore sit above or below what the market generally will pay.
• The cash value is the amount the property is expected to be convertible into cash for on the existing market, stripped of financing terms. If part of the purchase price is settled by taking over an existing loan on favourable or unfavourable terms, that is converted to cash so you are comparing like with like.
• The lending value (the lending basis) is the credit provider’s prudent estimate of what the property could be sold for within a reasonable time — often with a safety margin below the immediate cash value. This is the figure the loan limits are calculated from.

Rule of thumb: the sale price is what you negotiate, the cash value is what you document, and the lending value is what the credit provider sets conservatively on its own. Never borrow against your own optimism — borrow against the figure that holds up under scrutiny.

The point is that the lending basis is conservative by definition. The credit provider must be able to realise the security without loss if things go wrong, and therefore builds in a margin. A realistic cash value is the starting point — but the final lending value typically sits some way below it.

Why cash value is rarely the public assessment

A common mistake is to use the public property assessment as a yardstick for what can be borrowed against. The two figures do not measure the same thing. The public assessment is calculated for taxation purposes using a model applied uniformly across large volumes of properties, and it does not track the specific dynamics of individual transactions. It can sit markedly below — and in some segments above — the actual cash value.

Credit providers lend against the market, not against the tax authority’s model. If you want to understand why the two figures diverge, and when you can safely set the public assessment aside, the mechanics are covered in why market value and the public assessment diverge. The short answer: never use the public assessment as a lending basis — it is a tax instrument, not a transaction indication.

How an independent value indication is substantiated

A value indication that is to hold up in a credit assessment is not a gut feeling committed to paper. It rests on comparable sales — actual, documented sales of properties that resemble the one being valued closely enough to say something about its price.

For a home that means finding sales that match on the parameters that genuinely drive the price:

The parameters that have to match

• Geography. The closer, the better — but the radius must widen enough to gather a meaningful number of sales. In dense urban areas a few hundred metres can be plenty; in rural areas you may have to reach further out.
• Timeframe. Sales close to the valuation date carry the most weight. The further back, the more uncertainty — and the valuation must be made on the existing market, not on an expectation of where prices are heading.
• Property type, area and condition. A detached house is compared with detached houses, an owner-occupied flat with owner-occupied flats. Living area, plot size, age and condition are adjusted in so you hit the specific property’s profile and not a broad average.

The method behind turning comparable sales into a single defensible figure — including how to handle outliers and divergent sales — is described in how a property is valued on the existing market. For rental and investment properties, comparable sales are rarely enough on their own; here you supplement with a yield approach, where rental income and operating costs are converted into value via a required return — covered in yield-based valuation of an investment property.

Which documentation holds up under scrutiny

A credit department — and a valuer who puts their name to a valuation — must be able to verify every step in the reasoning. A documented valuation that holds up typically contains:

• Identification of the property against the public registers: BBR (the Buildings & Dwellings Register) for areas, use and building data, matriklen (the cadastre) for the plot’s extent, and tingbogen (the Land Registry) for title, charges and easements.
• A basis of comparable sales with date, address, type and price — so whoever verifies it can judge for themselves whether the comparison is reasonable, rather than taking the conclusion on faith.
• The adjustments that have been made between the comparable sales and the property being valued, with a rationale. Why has an uplift been added for condition? A deduction made for a smaller area?
• The registered conditions affecting value. An easement over a right of way, a covenant on building lines, or a charge that does not appear in the transaction can shift the lending basis. They belong in the analysis — including when they drag the figure down.
• Any planning conditions that bind the use, drawn from Plandata.dk (the planning data register), if the property’s future use is part of the value.

The typical pitfalls

The most frequent source of a valuation that does not hold up is an error in the underlying data — not in the calculation. A wrong living area in BBR feeds straight through to a price per m² that becomes misleading. The specific error types and how to catch them are collected in pitfalls in BBR data. Likewise, an overlooked easement or an unresolved title issue in tingbogen can undermine a lending basis that otherwise looks solid — which is why a review of the registered conditions belongs in any documented valuation, see the checklist for site due diligence.

From documentation to decision

What separates a value indication that passes a credit assessment from a loose estimate is traceability: every figure can be traced back to a source, and every adjustment can be justified. It is time-consuming to assemble manually — register lookups, sales searches, weeding out divergent transactions and documenting all of it in a form a third party can verify.

That is exactly the exercise the Properties module in Arcili brings together in one place. Identification against BBR, matriklen, tingbogen and the planning registers, a basis of documented, comparable sales within a chosen radius and timeframe, and a value indication you can export with its supporting data — so the figure the bank runs on rests on documentation rather than memory. It does not replace the valuer’s professional judgement, but it removes the hours of data gathering, so that judgement can be applied where it actually creates value.

If you want to see what a documented value indication looks like on a specific property, you can book a walkthrough.