Mortgage for a Concessionary Purchase
Updated 29th September 2020
Concessionary purchase mortgages are becoming more popular than ever before. This could be a family member selling the property below market value to you, or your landlord offering you a discount on your rental property Whatever your circumstances your mortgage expert will be able to advise on the best course of action for your circumstances, click on our short enquiry form. or call us on 0300 124 5655
What is a concessionary purchase?
Concessionary purchase is when a property purchased for less than the market value. This can also be known as “below market value” or “gifted equity” and usually happens in the following circumstances;
- Between family members
- Landlord selling to tenants
- Friends looking for a quick sale
- Property developers offering a discounted sale price
The degree of difficulty in obtain a mortgage will depend on the person gifting the equity, with the easiest way being from a family member. There are other factors which will affect this, the main one will be credit profile.
How does a concessionary mortgage work, will I need my own deposit?
Let’s have a look at how the figures would work and how mortgage lenders would assess the application. With a concessionary purchase the most straightforward example would be a son buying a property from his mum and dad:
£200,000 Property Value
£30,000 Gifted Equity
£170,000 Mortgage Needed
85% Loan to Value
The mortgage provider would use the whole gifted equity as the deposit. Meaning the son doesn’t have to put any of his own funds The mortgage lender will offer products based on 85% loan to value.
Some lender would require the son to put in a minimum of 5% from his own resources. The credit profile of the applicant will play a pivotal role in how much deposit (if any) would need to be added Your mortgage expert will be able to discuss this with you.
One key point to remember is stamp duty will need to be paid at the market value and not the actual purchase price.
When purchasing from your landlord most lenders will need a minimum 5% form your own funds and a minimum 5% reduction from the landlord, however there are a couple of lenders who will use the full discount as the deposit. This would be dependent on your credit profile and a number of other factors such as income type, property type, property construction etc.
Can I buy my parents house and them still live in it?
This is one question that comes up on a regular basis with concessionary purchase, the simple answer is, yes, it is possible but more difficult. The reason for the added difficulty is due to the fact that there are only a handful of lenders who will allow this scenario.
Majority of lenders will require the parents/grand parents etc to move out of the property upon completion of the sale. A determining factor for this would be credit profile.the lenders who will allow this type of transaction tend to be clean credit lenders. Your mortgage expert will be able to tell you all the options available to you.
Landlords selling property to tenants
Some tenants have been in the same property for a number of years and grow very attached to the property. Since tax regulation changed some landlords are selling properties and generally offer the tenants first refusal. Because of the relationship and the amount of time in the property they can offer the property below market value. The reason being is, they save time marketing the property, and with it being a private sale there are no estate agents costs involved. There are a number of factors that must be considered.
- Each lender has a maximum and minimum discount accepted
- Majority of lenders will require 5% deposit from client’s own funds
- There are however some lenders who don’t require any deposit
- Tenants must have lived in the property over 12 months
Do I pay stamp duty on a concessionary purchase?
Yes, stamp duty is payable the same as any other property purchase (if applicable to you). There are no benefits to purchasing a property under value as the stamp duty is calculated on the sales prices and not mortgage amount. The stamp duty calculator here will have all the up to date information.
Speak to a concessionary purchase mortgage advisor
Our mortgage experts will look at each case before deciding which lender is right for you and your individual circumstances. All the mortgage brokers we work with are whole of market and offer unbiased advice. They will have access to all the specialist lenders to really enhance your chances of achieving the mortgage you need.
The expert advisors we work with have experience in dealing with all aspects of concessionary purchase mortgages, and crucially use the whole of the market to access the best deals available.