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What is a concessionary purchase mortgage?

Concessionary purchase mortgages are simply where someone has an opportunity to purchase a property for less than market value. There can be lots of different reasons for being able to buy a house for less than it is worth, and it can often be the only way for many to be able to get on the housing ladder.

Another common name for concessionary purchase mortgages is ‘below market value purchase’ (BMV) or ‘gifted equity deposit purchase’, which makes a bit more sense. Essentially you would be gifted a deposit by the vendor of the property which is the difference between the value and the sale price.

Clearly, it’s a very fortunate position for someone to be able to get on the property ladder by buying a house for less than it is worth. We know that one of the most difficult parts of buying a new home is saving up enough money to pay for deposits, legal fees, and Stamp Duty.

In this guide, our mortgage experts explains how concessionary purchase mortgages work and everything you need to know in this situation. We’ll give you some step-by-step guides to this type of mortgage application and our own top tips for getting the best concessionary purchase mortgage deals.

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1 Minute Mortgage – How does a concessionary purchase mortgage work?

It has always been difficult to get your foot on to the housing market in the UK, never more so than in the current economic climate. Mortgage borrowers and home buyers now face more challenges than ever before, with inflated property prices, strict mortgage lending rules, and costs of living that are higher than we’ve seen in decades.

More and more home buyers are looking for access to schemes that give them the ability to buy the house of their dreams at a price they can afford. A concessionary purchase offers buyers and mortgage borrowers the olive branch they desperately need to be able to buy their first or new home.

  • A concessionary purchase allows mortgage borrowers to buy a property at below market value and use the difference as the deposit for the transaction.
  • Most mortgage lenders will allow buyers to use a gifted deposit to purchase their first home or new home which means that they don’t need to save money for their deposit.
  • The most common types of concessionary purchase mortgages come from a gift from a family member, their landlord on a rented home, or an incentive from a property developer.
  • There are still a lot of things to think about when applying for a concessionary purchase mortgage, such as affordability, credit history, funds for Stamp Duty and legal fees.

A concessionary purchase sounds quite simple in theory, but there are still quite a few potential issues with these types of property transactions. The most common type of concessionary purchase is where a family member (e.g. parents or grandparents) would sell you a property for less than it is worth, which is also the preferred option for mortgage lenders.

The discount that you are given would then be classed as the deposit for the property purchase and therefore can be a huge boost when trying to get your feet on the property ladder.

When you buy a property for less than the market value, generally you would apply for the mortgage for the purchase price and the lender uses the difference as the deposit. This can also be a risk to the mortgage lender because they only have security on the assumed market value of the property and not the full purchase price.

Most lenders will consider applications for concessionary purchase mortgages as long as they are supported by a proper valuation that meets their requirements. Mortgage lenders would usually be fairly strict about the property valuation because their security is on that figure if there are ever any problems with the mortgage loan.

Ultimately, you are actually applying for a 100% mortgage which is only available through a very small number of mortgage lenders. Some mortgage lenders might also still ask for some additional financial security or cash upfront.

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All mortgage applications will follow a similar path when it comes to finding the best deals and applying for your new mortgage. There are some slight differences with concessionary purchase mortgages that you should be aware of and prepare for, such as:

  • Deposits might still be a requirement to get a mortgage even though you’re getting some of your deposit from the seller as part of the agreement. The equity will be classed as part of your deposit for these types of purchases but there could be an additional requirement for as much as 5 to 10%.

  • Affordability will always be assessed for any mortgage application and with concessionary purchase mortgages, you’ll still need to be able to afford the property that you’re buying. The difference here is that you would normally search for a property that fits in your budget that you would already know from speaking to a mortgage advisor, whereas this is a property that has been offered to you to buy.

  • Valuations for the property will be assessed more closely than for a typical open market purchase, because of the risks connected with these agreements for the lender. You should make sure that the property has been properly prepared for the valuation so that there are no issues to be picked up on the surveyors report (e.g. damp, drainage, roofing, EPC, electrical etc.).

  • Credit history and credit score will also be assessed in the same way as any typical mortgage application and usually concessionary purchase mortgages will require a good credit profile. If you have serious bad credit or a very low credit score then you might find it difficult to get a mortgage agreement.

Once you’re happy with this and you feel that you’re ready for making an application then you should contact a qualified mortgage expert.

Below are some examples of what a concessionary purchase might look like and how the mortgage would work for these agreements. It can be easier to see the figures in black and white to properly understand how it might work for you.

   Example OneExample TwoExample Three
Property Value£200,000£150,000£250,000
Purchase Price (mortgage)£180,000£120,000£175,000
Gifted Deposit£20,000£30,000£75,000
Mortgage Loan-to-Value (LTV)90%80%70%

These examples are just for illustration purposes to help you to understand what mortgage lenders are looking for with a concessionary purchase mortgage. Each mortgage lender will have their own limits and criteria for these types of applications, and usually they will be assessed on an individual basis.

As we mentioned earlier, there are a few different common types of concessionary property purchase and scenarios. Mortgage lenders will generally look at each of these differently because they all come with their own potential risks.

  • Concessionary purchase from a family member: the most common and most acceptable type of concessionary purchase is one where a relative is selling a property to someone in their family. This is usually a parent selling a home to their child or a grandparent is passing a property to their grandchildren. One of the rules in these arrangements is that lenders will require the relative to leave the property after they have sold it, but not in all cases.

  • Concessionary purchase from a landlord: it is also fairly common for renters to purchase a property from their landlord for less than it is actually worth on the open market. Landlords can sometimes offer this as an incentive to offload a property without estate agency fees and the complications of listing a property for sale. This usually happens where a tenant has occupied the property for years, and some lenders require a minimum occupancy of 1 year.

  • Concessionary purchase from an employer: this is less common but it can also happen where an employer owns a property that they are willing to sell to a good employee for less than it would be worth if they sold it normally. There are some potential legal risks and implications with these agreements which means that the contract must be written properly to be agreed and approved by the lender.

  • Concessionary purchase from a property developer: some property developers offer incentives to buyers and especially First Time Buyers, for them to be able to buy their houses. These are slightly more risky for mortgage lenders and so they might be more difficult when it comes to getting a mortgage. The lender will be very cautious about the value of the property and they will want to see evidence of why the discount has been applied.

There are some other less common types of concessionary purchase that might be more difficult when applying for a mortgage. You should aways seek proper advice from a qualified mortgage expert for specialist mortgage applications like these.

Not all mortgage lenders in the UK offer concessionary purchase mortgages, and so it’s important to know who to apply to. As with any specialist mortgage, there are different things to think about and your options for mortgage lenders will be more limited than a standard mortgage application.

There are several top lenders that offer concessionary purchase mortgages and it does change from time to time, so it’s always worth getting advice from a qualified mortgage expert.

Below are just a few examples of mainstream lenders criteria for concessionary purchase mortgages:

  • Barclays offer concessionary purchase mortgages generally as long as you already know the vendor of the property (e.g. family, or landlord), so this means that they don’t  offer for property developer incentive schemes. They will be more strict with this than other lenders so you may also still need a deposit contribution on top of the mortgage (e.g. 5% as well as the voluntary deposit).

  • Halifax also offers concessionary purchase mortgages for family and landlord purchases with a minimum of a 10% deposit contribution. As we mentioned earlier, this is one of the lenders that would require the family member to leave the property on completion and for landlord purchases, they must have had a tenancy agreement for at least 12 months.

  • Natwest is another concessionary purchase mortgage lender where there is a clear legal relationship with the seller and the agreement has been written by a solicitor. They are also one of the only lenders that would allow the seller (family member) to remain in the property after the sale has completed, which must also be part of the legal agreement.

Concessionary purchase mortgages are different to standard mortgages because they are more complicated due to the legal implications and risks. Some specialist mortgage lenders also offer these types of mortgage agreements for all sorts of different situations.

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Bad credit history or a low credit score will have an impact on any mortgage application and this is the same for concessionary purchase mortgages. It still may be possible to get this type of mortgage with a low credit score, depending on the circumstances and the level of bad credit.

These mortgages are often available for people with minor bad credit such as missed credit payments or even defaults, but not necessarily for more severe problems like bankruptcy. You should definitely get proper advice from a qualified mortgage specialist as they would be able to tell you what the best options are and help you to save time and frustration.

Another major benefit of a concessionary purchase is that stamp duty land taxes will be charged at the purchase price for the property rather than its market value. This offers you even more savings compared to if you had bought the property at market value.

If you are a first-time buyer and the property is worth less than £425,000, you are exempt from paying stamp duty at all. This does not apply however if the property is intended as an investment e.g. a buy to let property.

If you are the person selling the property, you may be liable to pay capital gains tax on the sale. This will only apply under certain circumstances though. You will not need to pay capital gains tax if: 

  • The property is your main residence 
  • The property has not been used as business premises 
  • It was not bought specifically to make a profit (e.g. an investment/rental property) 
  • If the property has never been let to another person 

For further advice when it comes to tax and property sales, it is best to consult an accountant or independent financial advisor. You could also be subject to other taxes when buying or selling below market value such as inheritance tax, so it is best to be well informed.

It’s important to get proper advice when you are thinking about applying for a specialist mortgage like a concessionary purchase. This can help you to save a significant amount of time and to make sure that you get the lowest mortgage rates that are available.

If you need help or advice then you can speak to one of our friendly concessionary purchase mortgage experts on 0800 009 6559 or CLICK HERE for more information.

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