Concessionary Purchase Mortgages
Buying a property below market value? Here’s what you need to know about concessionary purchase mortgages.
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If you’re lucky enough to be offered a discount on the market value of a property, you’ll need what’s known as a concessionary purchase mortgage to fund the rest of it.
This guide will tell you everything you need to know about concessionary purchases, the kind of mortgage you’ll need to suit and how to get one, giving you the tools you need to get your foot on the ladder without putting up a considerable deposit yourself.
What is a concessionary purchase?
A concessionary house purchase is where you buy a property at below market value, normally through someone gifting you the difference. As such it can also be known as a below market value (BMV) purchase, or a gifted equity deposit purchase, as in many cases the discount can be viewed as a deposit. A mortgage used to fund this kind of purchase is therefore known as a concessionary purchase mortgage.
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How do concessionary purchase mortgages work?
They work similarly to standard mortgages, but one of the key advantages is that the deposit will be the equity provided by the discount. The lender will still base their loan-to-value (LTV) calculations on the market value, but will offer you a mortgage that’s effectively 100% of the price you’re paying, and you may not need to put down any additional cash upfront (though there are some exceptions).
Note that the discount offered must be a gift. It can’t be a loan or share in the property, it can’t be paid back later, and the seller must not have any financial interest in the property once the sale is complete. There’ll be overall LTV restrictions as well to ensure the mortgage doesn’t exceed the lender’s maximum lending limits.
One of the drawbacks is that it can be a difficult sector to navigate, and will often require specialist support from a broker who’s experienced in concessionary mortgages. It’s always advisable to seek support from the experts ahead of time so you know what you’re dealing with.
To illustrate how concessionary purchase mortgages work in the UK, here’s a quick example:
- You’re offered a £20,000 discount on a property worth £200,000.
- The £20,000 discount acts as a 10% deposit.
- You seek a mortgage for £180,000 at 90% LTV, without needing to put down anything else upfront.
A concessionary purchase mortgage calculator may be helpful in this scenario, and bear in mind that you may be expected to put down a deposit of your own as well. This will be more likely if the purchase isn’t via a family member, which is by far the most common.
How to get a mortgage for a concessionary purchase
The application process for a concessionary mortgage will be similar to any other, though you may need additional evidence to prove the discount. Here are the recommended steps to take:
1. Speak to a specialist mortgage broker
The complex nature of this kind of purchase means speaking to a broker who specialises in this sector is essential. They’ll be able to take you through the process, explaining what you need to do to prove to lenders that the discount really is a gift, and they’ll know the lenders that will be able to accommodate.
This can be particularly beneficial if you’re being offered a discount by someone other than a family member or landlord, where it may be more difficult to both prove the legitimacy of the offer and find a lender to suit.
Make an enquiry so we can introduce you to a broker we work with who has experience in this specific area of mortgage lending.
2. Collate your paperwork
Aside from the usual kind of paperwork you’ll need for any mortgage application – bank statements, proof of ID, etc – you’ll need additional documentation for this kind of purchase.
This can include written evidence to confirm who’s offering the discount and why, the relationship between vendor and buyer, and confirmation that the gifted amount of equity is not a loan. This will need to be signed by both parties and can be particularly important in situations where family members aren’t involved.
You may also need to produce additional surveys or reports to prove that there are no underlying issues with the property that would explain the discount, perhaps if you’re being offered a developer or open market discount, while a tenancy agreement (or proof of rent being paid on time) will likely be needed if you’re buying from a landlord. Again, a broker can help you understand the kind of paperwork you need to provide depending on your situation.
3. Check your eligibility
Much like with all mortgages, you’ll need to make sure that you’re eligible for a loan in the first place. Your age, income, outgoings and property type will always come into it, as will your credit score, and you’ll want to make sure your affordability profile is the best it can be.
Yet you’ll need to ensure you meet the more specific criteria of the lender as well. For example, find out if they need a deposit over and above the equity provided by the discount, and if so, make sure you can provide it.
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What types are there?
There are a few scenarios where you may need concessionary mortgages, including:
Family concessionary purchases
Family concessionary mortgages are for situations where you’ve been offered a discount from a family member, often in situations where parents want to help their children get onto the property ladder by letting them buy the family home at a discount. The family member(s) will normally be required to move out on completion of the sale. However, not all lenders will demand this – some will allow family members to stay as long as you make them aware.
Landlord concessionary purchases
Your landlord may be looking to sell the property and, to avoid the hassle of the open market, will be willing to offer it to you at a discount. This can be more likely if you’ve been a long-standing tenant; indeed, some lenders stipulate you’ll need to have been a tenant for a certain length of time – typically 12 months – before offering a mortgage.
Employer concessionary purchases
If you’ve got a good relationship with your employer, they may be willing to offer you a property at a discount as well. However, issues regarding ownership and equity can be more common later on, so it’s vital to make sure everything is in writing – specifically, the employer will need to waive their rights and stipulate that the discount was a gift, not a loan to be repaid.
You may also come across two other types that are much rarer – developer and open market concessionary purchases, where either the developer of a new build property or the seller on the open market offers you a discount.
Both of these come with greater risk and lenders are less likely to approve a mortgage on such a property, normally because they’ll question why a discount was offered. This is particularly the case with open market discounts.
For example, the property may have damp or structural issues which meant the seller was willing to offer you a discount on the purchase price, but this will understandably ring alarm bells with many lenders, who won’t normally be willing to offer a mortgage on uninhabitable properties.
Which lenders are happy with these arrangements?
While there are several UK lenders operating in the concessionary mortgage space, most stipulate that the purchase must be via a family member or landlord, while others will have strict LTV limits and/or additional deposit requirements. A few examples include:
- Barclays will potentially accept concessionary purchases provided there’s an existing relationship (e.g. parent and child), and an additional deposit of at least 5% from the applicant’s own resources will be required. They may also accept landlord discounts, though a minimum deposit is still necessary.
- NatWest can potentially accept a concessionary purchase via a family member, provided there’s a clear connection with an appropriate report from a solicitor. They will also allow family members to stay in the property after completion.
- Halifax can accept family or landlord concessionary purchases, provided there’s a minimum discount of 10%. In the case of family purchases, the vendor must move out on completion, while for landlord concessions, the tenant must have been subject to a tenancy agreement for at least a year.
While this type of arrangement will be fairly simple to organise if the property is being kept in the family, anyone hoping to get a discount from an employer, developer or open market seller will find the options far more limited. This makes the support of a broker even more essential as they’ll know the lenders to approach based on your situation.
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A potential disadvantage of concessionary purchases is that they can come with additional tax implications. These include:
- Stamp duty. Stamp duty on a concessionary purchase always needs to be considered, with your main question likely to be: do you pay it on the market value or the discounted price? Happily, it’s typically based on the actual sale price, which means you could potentially save a lot of money here too.
- Capital gains tax (CGT). This will depend on whether the property is the seller’s primary residence, and your relationship to them. If it’s the primary residence then the seller will have no CGT to pay, but if it’s a second property, CGT is payable. Plus, if you’re buying from a family member or “connected person”, CGT will be based on market value rather than purchase price.
- Inheritance tax. If you’re buying a discounted property from your parents or other family members, there could be inheritance tax implications later down the line if they pass away within seven years.
It’s important to get professional advice when it comes to tax, as this is a complex area that needs the input of an expert financial advisor to ensure you’re prepared.
Get matched with a broker experienced in concessionary purchase mortgages
Securing a concessionary mortgage can be a great way to get on the property ladder without needing to fund a significant deposit yourself, but having the right advice is key. It’s vital to seek support from a broker who specialises in this sector to benefit from both their expertise and contacts, and we can put you in touch with them.
Our unique broker matching service does the hard work for you by pairing you with an advisor who’s perfectly suited to your requirements. Just make an enquiry or call us on 0808 189 2301 for a free, no-obligation chat and see what they can offer.
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Yes, it’s possible to arrange in Scotland and elsewhere in the UK.
Yes, though as with all bad credit mortgages, there may be additional requirements and you’ll likely be offered less favourable rates and terms. Find out more about how to get a mortgage with bad credit by reading our guide.
Yes, though it’s less common. Many lenders expect the concessionary purchase to be for a main residence but some will accept buy-to-let mortgage arrangements as well, though there may be additional restrictions in terms of LTV or additional deposit requirements. Make sure to speak to a specialist broker if this is something you’re considering.
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