Last Updated on 13th September 2020
There are more ways for first-time buyers to get on to the property ladder than ever before. With help from the government and if you’re lucky, the bank of mum and dad, buying your first home can be a breeze (if you know how).
A concessionary purchase is just one of many ways first-time buyers can secure their first property. Furthermore, a concessionary purchase doesn’t have to be solely for first-time buyers.
This guide will explain everything you need to know about concessionary purchases including the type of mortgage you’ll need. You can also make an enquiry if you want to get started or ask our experts for advice.
What is a concessionary purchase?
A concessionary purchase is a term used for a property that’s purchased for less than its market value. You may have heard the term ‘BMV’ or ‘below-market value’. These terms also describe a concessionary purchase.
A concessionary mortgage is a term used for a loan to purchase a property for less than its market value.
Concessionary mortgages can be used to buy a property that’s sold at a discount by:
- A family member
- Property vendors who want a quick sale
Some concessionary mortgages are easier to obtain than others. For instance, mortgages involving family members are a lot easier to get than if an investor was purchasing from a private seller.
How do concessionary mortgages work?
So, we’ve established what a concessionary purchase is, but how would a mortgage work?
Imagine there’s a family member such as a parent who wants to help you become a homeowner. In doing so, they offer their property to you for a discounted price. The property is currently worth £100,000 and although you can afford a mortgage, you don’t have a substantial deposit.
Your parents agree to sell the property to you for a discounted price of £80,000. The surplus of £20,000 would then act as your deposit.
You’d then need a concessionary mortgage of £80,000 to purchase the property. Although the surplus of £20,000 would allow for a deposit, it would act as a gift.
Most lenders will still require you to have a 5-10% deposit. There are lenders that may be willing to offer you 100% of the loan. That being said, it does depend on the rest of your application and the lender in question.
Concessionary mortgages aren’t to be confused with mortgages that involve gifted deposits. Gifted deposits are for when family members gift funds to a buyer so they’re able to purchase a regular property for its actual value.
Read more: What is a gifted deposit mortgage?
Concessionary mortgage rates
Concessionary mortgage rates aren’t that different from regular mortgage rates.
The deals that are offered to you will depend on the following:
- The discount offered on the property
- Whether or not you’re using your own deposit
- The amount you’re able to afford
- Your credit history
- The condition of the property
Some lenders may use other factors to influence what rates are offered. Nonetheless, this is the same for any mortgage type and not just concessionary purchases.
Buying a house from a family member at a discount
Concessionary purchases that involve family are perhaps the easiest to get when compared to other arrangements. Most lenders insist that family members are either parents, grandparents or children. That being said, some lenders may allow for aunts and uncles to sell to nephews and nieces.
Buying a property from family has many benefits. Parents can help their children on to the property ladder which can alleviate some early financial pressures. Properties that have been owned by a family for many years may also carry a sentimental value. As a result, you may want to keep your family home for generations to come.
Things to be aware of
There are also a few things to consider before you decide on whether a concessionary purchase is the best route.
The majority of lenders won’t allow parents to live in the property once it’s been sold. This is because of issues that may arise in the future, such as disputes over ownership and rights to the property. Some lenders may allow parents to remain in the property, but on the condition that they sign a ‘waiver of rights’. This can leave parents vulnerable as circumstances in the future can change.
Although a conveyancer would represent each party in the transaction, it’s advised to seek independent legal advice before making any commitments. This is so that each party understands their position and can take necessary protection if needed.
There are also other options to help family members on to the property ladder. For instance, you may be able to add a child on to the property as a joint owner. Joint ownership also has its risks, however, parents would still own part of the property. You can speak to our advisors if you’re unsure of what to do.
Landlords selling their rental property to tenants
Tenants that have lived in a property for many years may eventually want to buy it. Landlords can save money and time (and stress!) by selling to their tenants, rather than using an estate agent to market the property.
There are certain conditions to meet if landlords want to sell to their tenants at a discounted price, such as:
- Discounts can rarely exceed 10%
- Borrowers may require a 5% deposit (some lenders may request more)
- Tenants must have lived in the property for over a year
Although these conditions are common, it doesn’t mean to say there aren’t lenders out there that aren’t flexible. For instance, some lenders may agree even if discounts exceed 10%. Some lenders also offer concessionary mortgages without the need for a physical deposit.
Discounted property sales that involve landlords and tenants are quite rare. As a result, there aren’t many lenders that offer mortgages in this area. Nonetheless, we have access to every UK lender, so if there’s a mortgage, we’ll find it.
Other scenarios that may involve a concessionary purchase
There are other situations that may warrant a concessionary purchase. Although possible, arrangements that fall outside of family are difficult to come by.
Employers may want to sell to employees, or a developer may be in a rush to sell. Investors who have managed to negotiate a below-market value deal may also be interested in concessionary deals.
Situations such as these would be assessed on a case by case basis. This is due to the rarity of people selling their homes for less than what they’re worth.
Stamp duty on concessionary purchases
Stamp duty land tax (SDLT) works in the same way for a concessionary purchase as it does for regular purchases. For instance, if you’re a first-time buyer and have never owned a property, you’d be exempt from paying stamp duty up to a purchase price of £500,000.
If you’re already a homeowner and are buying a second home, you’d have to pay stamp duty at the following rates.
|Less than £125k||3|
|£125k to £250k||5|
|£250k to £925k||8|
|£925k to £1.5m||13|
|rest over £1.5m||15|
The good news is that with a concessionary purchase, stamp duty is charged at the discounted sale price of the property and not its market value. This can save you a lot of money, especially if you’re not a first-time buyer.
Let’s take a look at an example.
If you’re purchasing a second property for £120,000 but it’s actually worth £150,000, the stamp duty charge would be £3,600 (£120,000 x 3%).
Now, if you were paying stamp duty on the market value of £150,000, your stamp duty charge would be over double at £7,500 (£150,000 x 5%).
That’s a huge saving of £3,900! In addition to the £30,000 discount received off the market price, you’ve got yourself a very good deal indeed.
Mortgage advice for concessionary purchases
Getting the right advice can make or break your mortgage deal. Concessionary purchases can be so varied in terms of the seller, the buyer and the discount involved. This why trying to find a suitable lender is often difficult.
Our specialists will speak to every possible lender to find you the best deal. We’ll also advise you on how best to structure the transaction.
We’d need to speak to you first to develop an understanding of your circumstances. We’ll then provide you with the best possible route to getting your deal past the finish line.