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Mortgage for a concessionary purchase

Last updated on 12th September 2023 by Martin Alexander

A concessionary purchase is one of many ways first-time buyers can secure their first home. Furthermore, a concessionary purchase isn’t solely for first-time buyers, as investors can also purchase buy-to-let property.

What is a concessionary purchase?

A concessionary purchase is when a property is purchased for less than its market value. You may have heard the term ‘BMV’ or ‘below-market value’. To buy a property for less than its market value, you’d need a concessionary mortgage, as a regular mortgage wouldn’t be suitable.

Concessionary purchase mortgages can be used to buy a property that’s sold at a discount by:

  • A family member
  • Landlords
  • Employers
  • Developers
  • Property vendors that want a quick sale

Some situations make it easier to get a mortgage than others. For instance, mortgages involving family members are much easier to obtain than an investor purchasing from a private seller.

How does a concessionary mortgage work?

So, we’ve established what a concessionary purchase is, but how would a mortgage work?

  • A family member, such as a parent, 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.

Will I still need a deposit?

Most lenders will still require you to have a 5-10% deposit. Some lenders may be willing to offer you 100% of the loan, but it depends 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 when family members gift funds to a buyer so they can purchase a regular property for its actual value.

Read more: What is a gifted mortgage deposit?

How to get a concessionary purchase mortgage

It’s recommended to first speak to a mortgage advisor who specialises in this field. Your advisor will then guide you through each process and check your eligibility.

To qualify, lenders will check the following:

  • Affordability assessment – Lenders will carry out an affordability check to ensure you can repay the mortgage you’ve applied for.
  • Deposit amount – For a concessionary purchase mortgage, your deposit could be an equity you retain in the property, such as the discount you’ve received. Nonetheless, you can still use a cash deposit, which may qualify you for better deals.
  • Property eligibility – Each lender has varied criteria, so you’ll first need to check with your advisor if the property you’re buying is suitable for a mortgage. This is especially true when properties are sold for a discount, as they may require renovation. Lenders may be reluctant to say yes if the property requires extensive work. That said, some lenders are better suited for this.
  • Download your credit reports – Check your credit files to ensure it’s accurate. If you’ve run into credit issues, you can assess what’s been recorded. Our advisors can then approach suitable lenders based on your credit issues.

Concessionary purchase mortgage rates

Concessionary mortgage rates aren’t that different from regular mortgage rates.

The rates 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 decide what rates are offered. Nonetheless, this is the same for any mortgage type, not just concessionary purchases.

Can I buy a house from a family member at a discount?

Purchases involving family are perhaps the easiest to get compared to other arrangements. Most lenders insist that family members are either parents, grandparents or children. That said, some lenders may allow aunts and uncles to sell to nephews and nieces.

Buying a property from family members has many benefits. Parents can help their children buy their first home, alleviating early financial pressures.

Properties owned by a family for many years may also carry sentimental value. As a result, you may want to keep your family home for generations to come.

What should I be aware of?

Most 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 will 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 is advised to seek independent legal advice before making any commitments. This ensures that each party understands their position and can take necessary protection.

There are also other options to help family members buy a property. For instance, you may be able to add a child to the property with a joint mortgage. Joint ownership also has risks, but parents would still own part of the property.

Can I buy the house I rent from my landlord?

Tenants who have lived in a property for many years may eventually want to buy it. Landlords can save money, 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, they’re not always set in stone. For instance, some lenders may agree to a mortgage 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 pretty rare. As a result, there aren’t many lenders that offer mortgages in this area.

Other scenarios that may involve a concessionary purchase

Other situations may warrant a concessionary purchase. Although possible, arrangements that fall outside of the 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 their worth.

Will I need to pay stamp duty on a concessionary purchase?

Stamp duty land tax (SDLT) works similarly 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 £425,000.

If you’re already a homeowner getting a second mortgage, you must pay stamp duty at the following rates.

Tax Band Stamp duty charge
Up to £250,000 3%
£250,001 to £925,000 8%
£925k to £1.5 million 13%
Over £1.5 million 15%

The good news is that with a concessionary mortgage, stamp duty is charged at the discounted sale price of the property and not its market value. This can save you money, especially if you’re not a first-time buyer.

About the author

Martin Alexander
Senior Mortgage Advisor

Martin is a senior mortgage advisor who has held a CeMAP qualification for over 15 years while completing an MBA in Global Banking and Finance.