Everything you ever wanted to know about concessionary purchases
A Concessionary Purchase, if you‘re lucky enough to be offered one, is an excellent way to get a foot on the property ladder without waiting years to save a deposit. But how does a Concessionary Mortgage work and how much deposit do you need?
We’ve collated everything you need to know about a ‘buying a house below market value’ mortgage including:
So what is the Concessionary Purchase Mortgage definition? We’ve helped many buyers who have come to us and asked, ‘What is a Concessionary Purchase?’
A Concessionary Purchase is a term used to describe the purchase of a house for less than face/market value.
It is also known as a below market value purchase (BMV), and mortgages are referred to as Concessionary Mortgages or BMV mortgages.
How does a Concessionary Mortgage work?
When the property is purchased, it is usually sold at a discounted price (as a gift), to make it a cheaper deal for the buyer.
Parental/Family Concessionary Purchase Mortgages
Recognising the expense and difficulties their children face in today’s property market, many parents want to help, and a Family Concessionary Purchase allows them to do this.
Landlord Concessionary Purchase Mortgages
Similar to parents, a landlord may wish to sell the property to their tenants at a discount, in part to avoid the cost and headache of marketing and selling the property on the open market, and also, if they wish, to recognise the value in the rent paid, especially if they have been good tenants.
Like gifted equity deposit mortgages, Landlord Concessionary Buy to Let Mortgages also come with caveats for many lenders, including the following…
The discount given cannot be below a certain percentage (usually 5-10%)
Some lenders ask the borrower to put in at least 5% of their own cash
Some lenders require the tenant to have lived in the property at least a year before a Bmv Mortgage can be agreed
There are relatively few Landlord Discount Mortgage lenders who will offer a Concessionary Buy to Let Mortgage, for the rare occasion where a borrower wants to move out and then rent the property out to someone new.
If you want to buy the property you rent and need a Landlord Discount Concessionary Mortgage, speak to one of our mortgage experts here, and they can advise you what to do next.
When buying below market value, mortgage applications can become a little more complex. Some lenders aren’t happy to be involved at all. Some stipulate that the agreed discount purchase price is the true value of the property and require deposit based on this figure, regardless of the true market value (even if worth a million and being bought for a pound). And some will recognise the discount as deposit, but also require the buyer to put their own deposit in on top.
Property concessionary discounts from employers
It could also be the case that an employer has a property and is willing to discount the property below market value so that an employee can buy it. To avoid any disputes about ownership, the seller must acknowledge that any discount provided is a gift and has no conditions attached to it. This is done in writing through what's known as a waiver of rights.
Developer concessionary purchase discounts
Developers can also offer buyers a concessionary purchase discount (more commonly known as a developer discount) on the market value of one of their properties. It can be more difficult to find a lender who will provide a mortgage for this though, especially regarding new builds.
Lenders will want to know why the developer is prepared to sell at a discount. It could just be because they need a quick sale however, a lender will want to establish that it's not because of problems with the property as this could cause them problems later down the line if they need to repossess and then sell the home.
Open market concessionary purchase discounts
Buyers can receive a discount from sellers on the open market too. This is perhaps a little rarer and again it will be harder to find a lender willing to lend in instances like this as they will need to know why a discount is being offered.
For example, if the seller is offering a discount because of structural problems, damp or any other issues with the property, the lender will see this as a higher risk and could ask you as the buyer to provide a higher deposit to offset this.
What deposit will I need for a Concessionary Mortgage?
In theory, it is possible to get a mortgage to 100% of the purchase price if the overall loan to value (LTV) based on the market value is suitable security for the lender. This would usually need to equal the lenders normal minimum deposit requirements, at say 85-90% of the market value.
The great thing about a Concessionary Purchase is that with some lenders, the difference between the property value and the purchase price is recognised as your ‘deposit’, and they don’t require the borrower to put in any of their own money as deposit.
Here’s an example:
The example below shows the effect the sale price can have on the size of the loan required. The bigger the discount applied to the market value of the property, the less loan needed.
Your parents have a property which is valued at £200,000 but they decide to sell it to you under the market value at £170,000.
Some lenders (Lender A) will not lend at all as they don’t accept any concessionary purchase arrangement regardless of discount or deposit.
Some lenders (Lender B) recognise the difference of £30,000 in the sale price and the market value acts as the deposit (15%), meaning that you, as the buyer, don’t have to save one, and can qualify for an 85% mortgage for the full £170,000.
Some lenders (Lender C) recognise the discount but still require the buyer to put in personal cash of at least 10% of the discount value.
Property with market value of £200,000
What are the limits of a Concessionary Mortgage?
Although a below market value mortgage can provide a more affordable path to the property ladder for some, it’s important to highlight the limitations of this product type. Such as…
The discount must be a gift and not a loan
A Concessionary Mortgage is sometimes referred to as a Gifted Equity Deposit Mortgage because any discount must be given as a gift absolute, and not a loan or share in the property, and there should be no conditions attached to it.
For the person selling the house, this is a huge financial gift and therefore your mortgage lender may ask that both you and the seller seek independent financial advice before moving forward.
For anyone wanting to share the property rather than sign it over completely, it might be advised to consider a joint mortgage with transfer of equity from one party to all.
Some lenders won’t allow your parents to live in the property after the sale
If buying from parents and they are planning to continue living in the property after selling it to their child, it’s important to note that most lenders prohibit the person selling the property from continuing to live there after the sale, usually due to concerns around rights to ownership / residence should the property ever be repossessed. Especially relevant in concessionary purchases where there has also been a gift of equity that could, in future, be disputed without the correct legal protection.
That said, there are a few lenders that can consider letting the seller remain in the property, providing that they sign a waiver of rights, and the buyer can of course afford the mortgage alone.
Concessionary purchase mortgage rates
When comparing a Concessionary Mortgage, lenders’ rates are usually the same as for a standard purchase. Of course mortgage rates differ depending on many factors such as the type of property you're buying, the length of your mortgage term, your credit history and the amount of mortgage you are applying for. Because of this it can be really handy to speak with a mortgage advisor who can research the market and find the best mortgage rates for you based on your circumstances.
Can I get a Concessionary Mortgage with bad credit?
Depending on your circumstances, it is possible to get a Concessionary Mortgage on a property even if you have bad credit. Types of bad credit could include:
No credit history
Low credit score
Missed mortgage payments
Debt management Schemes
And mortgage customers with multiple credit problems
The good news is that ‘bad’ credit is subjective, and there are many lenders offering mortgages to people even with severe and recent credit issues, in the right circumstances.
Some forms of credit, like a repossession or bankruptcy, are viewed as more severe whilst others including late payments and a low credit score can be acceptable on a mortgage application.
Every lender has a different conditions and they use varying criteria to assess someone’s risk and ability to repay their mortgage. While one lender may reject you, another may have no problem approving your application.
The specialist advisors we work with are experts at finding Concessionary Purchase mortgages for people with bad credit and will be able to help you find an affordable mortgage deal based on your circumstances.
What else impacts Concessionary Purchase mortgage eligibility?
Other factors that can affect your eligibility for a Concessionary Purchase include:
Property type - listed buildings can be seen as riskier for lenders to provide mortgages on as they tend to be more difficult to sell on in case of repossession
Income - Lenders will need to be confident that you can afford your mortgage repayments
Length of mortgage term - A standard mortgage term is 25 years and so there are some lenders that won't provide a mortgage to elderly applicants. Borrowers wanting a mortgage over a shorter period of time will need to prove affordability.
What is the Stamp Duty on a concessionary purchase?
If you are a first time buyer and have never owned a freehold or have a leasehold interest in a residential property in the UK or abroad, then you are exempt from paying stamp duty, as long as you are purchasing a property at £500,000 or less.
If you’re not a first time buyer, the great thing about Concessionary Purchase Stamp Duty is that it is calculated on the sale price of the property not the market value.
For example, if the market value of a property is £200,000 but it is sold to you for £170,000, the Stamp Duty on a concessionary purchase would be calculated from the £170,000.
Stamp Duty is charged at 2% for properties between the value of £125,001 and £250,000, so it would mean you would pay £3,400 in Stamp Duty.
Property with Market Value of £200,000
Rate of Stamp Duty
Stamp Duty payable
Sold at £200,000
Sold at £170,000 (under MV)
Not only does a Concessionary Purchase save the buyer money by reducing the sale price of the property but it can also reduce the cost of Stamp Duty.
What should I do before applying for a Concessionary Purchase?
If you’re applying for a Concessionary mortgage the next steps can be very helpful during and before the application process.
Make sure both you and the seller understand Below Market Value Mortgages
A Concessionary Mortgage requires the seller to discount the selling price of their property in order for the buyer to afford it and not have to save a deposit. This is a huge financial gift and should not be taken lightly without both parties understanding the terms and conditions before proceeding.
Review your credit files before applying for a House Under Value Mortgage
If you want to apply for a mortgage, it’s vital that you know your credit history and understand what lenders will see when assessing your application.
You might find that your credit score differs between each credit firm. It can be frustrating as one may say you have good credit whilst another presents your credit history with a lower score. This is because each credit firm uses different criteria to calculate someone’s credit score, and that’s why it’s best to have a copy of each report from the major firms including:
Credit Monitor (previously Call Credit)
The advisors we work with can help you with this and can also offer you a free trial with the major credit firms listed above.
Get your credit rating
Try a Concessionary Mortgage calculator
Many lenders that specialise in Concessionary Mortgage purchases use a unique calculator to determine how much an applicant can borrow. Each lender is different and as well as using your income and the sale price of the property, they may also use other affordability factors to calculate the amount you can borrow as well as whether you’ll need a Concessionary Mortgage deposit.
Bear in mind that with every Concession Mortgage lender in the UK, you may receive a different estimation on how much you could borrow because of their varying criteria. The advisors we work with can help you find the best deal with a Concessionary Mortgage calculator, contact them here for advice on this.
Compare Concessionary Mortgage lenders
Applying for a mortgage is best done via a broker with access to all the Concessionary Mortgage lenders across the UK. Over the years we've helped lots of homeowners with below market value property mortgages.
A good broker should be able to find you the best deal, based on your circumstances, from all the Concessionary Purchase Mortgage lenders that would consider you.
An adviser should always make things clear to you and gain your agreement before proceeding with any Mortgage Concessionary Purchase applications.
The brokers we work with are experts and can find out how much deposit you’ll need with each of the Concessionary Mortgage providers, and connect you with the lender offering the best deals, should you decide to proceed.
To get a quote from one of the specialists we work with get in touch.
Speak to a Concessionary Purchase mortgage expert today
If you like anything in this article or you’d like to know more, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.
Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA.Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes.
The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete's presence in the industry as the 'go-to' for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
Read more about Pete here...
Find out more about the deposit you need for different mortgages