In some situations, you may have an opportunity to buy a property for far less than its market value. This is what is known as a concessionary purchase.
If you can do this, it will equal a new home or investment property plus significant savings. Most often concessionary purchases will happen between family members, but there are other occasions when they can occur too.
In this guide, we will explain everything you may need to know about concessionary purchases and how you can get a mortgage for this type of purchase.
What is a concessionary purchase?
A concessionary purchase can often also be referred to as a below market value (BMV) purchase. Put simply, a concessionary house purchase means you are buying the property for less than what it is worth.
There are various reasons this may be the case including:
- Purchasing a property from a close friend or family member
- Purchasing your current home from your landlord
- As part of a discount offered by a developer on a new build property
- A seller may be offering a reduced price if requiring a quick sale
As the difference between the market value and discounted price is covered by the seller, sometimes the mortgages for these sales can be referred to as gifted equity deposit mortgages. This is due to the seller technically ‘gifting’ you the difference in equity so the lender classes this as a gifted deposit.
Concessionary purchase mortgages
It will be necessary to take out a concessionary purchase mortgage if buying a house at lower than market value. The process with this will be the same as applying for any other mortgage type.
It is however worth getting some advice from a broker that is familiar with concessionary mortgage deals.
Specialists mortgage brokers such as us will know the best lenders to approach in this situation and which ones are offering the most competitive mortgage rates.
Learn more about how to apply for a mortgage in our handy mortgage application guide.
Concessionary house purchase
With a concessionary purchase, the lender will want to know why the property is being sold for a lower amount.
They will need this information before deciding whether to approve your application. If the purchase is between family members, lenders will understand this as a reason for the discounted price. This a common occurrence and something they will be used to seeing.
In other circumstances, you may be purchasing at a discounted price from a property developer or your landlord. In these cases, the lender will want assurances the discount is not due to an issue with the property such as structural damage.
Family concessionary purchase
A family concessionary purchase tends to be the most common type seen by lenders.
A relative may be moving abroad, have inherited a house they do not wish to live in themselves or need to sell a second home. They may even just wish to keep the property they are selling within the family.
If you speak to the right lender, you shouldn’t run into additional issues finding a great mortgage deal for this purchase. Speak to one of our mortgage experts if you are unsure where to begin your search.
We can compare mortgage deals across over 50 of the UK’s top lenders, to ensure you are getting the best terms and pricing possible.
Concessionary purchase of a parents house
Commonly it will be parents that will offer to sell to their children at a discounted price. They may wish to support you if you are a first-time buyer for example, or if you have struggled to buy previously due to lower income or a poor credit history/credit score.
They can offer to sell to you for numerous reasons, but whatever the reason is it can be very beneficial for you.
You will likely know the property very well and with such a close relationship with the previous owners you will be more aware of any potential issues.
This can save you from unexpected expenses further down the line, such as needing repairs that you were unaware of.
Landlord concessionary purchase
Landlords may wish to sell a property they have been letting to their current tenant. If struggling to find a buyer or wanting a quick sale, they might offer to let you buy your current home for less than market value.
If wanting to stay in your current home, this can be a great opportunity to get onto the property ladder while saving at the same time.
Just be aware that lenders may have additional questions, to check that the landlord is not selling to you at a lower price due to problems with the property. A valuation is a standard part of the mortgage application process, so this will help them assess if there are any issues with the property.
Stamp duty on a concessionary purchase
Another 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 further 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.
Concessionary purchase capital gains tax
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.
Concessionary purchase mortgage lenders
There will be certain lenders that will be better suited to offering concessionary purchase mortgages. With decades worth of experience when it comes to mortgages, our team know exactly where to look to find your perfect deal.
We have spent time putting together a dedicated panel of lenders, all suited to various mortgage types and buyers. This means we can find the most competitive pricing and best deals for each individual buyer. This includes finding the best concessionary purchase lenders for your mortgage deal.
Speak to one of our expert mortgage advisors if you need help with your concessionary purchase. We can offer extensive advice and support throughout your mortgage application.