Last reviewed on 12th September 2023 by Martin Alexander (Mortgage Advisor)
A concessionary purchase is just 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?
- How do concessionary mortgages work?
- How to get a concessionary purchase mortgage
- Concessionary purchase mortgage rates
- Can I buy a house from a family member at a discount?
- Can I buy the house I rent from my landlord?
- Other scenarios that may involve a concessionary purchase
- Will I need to pay stamp duty on a concessionary purchase?
- Mortgage advice for concessionary mortgages
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 mortgage, which is a loan used for the purchase of 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 that want a quick sale
Some situations make it easier to get a mortgage than others. For instance, mortgages involving family members are a lot easier to obtain 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?
- There’s a family member such as a parent that 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. 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 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 part of the process and check your eligibility.
To qualify, lenders will check the following:
- Affordability assessment – Lenders will carry out an affordability check to ensure you’re able to repay the mortgage you’ve applied for.
- Deposit amount – For a concessionary purchase mortgage, your deposit could be an amount of equity you retain in the property, such as the discount you’ve received. Nonetheless, you’re still able to put a deposit down which may qualify for you 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. If the property requires extensive work, lenders may be reluctant to say yes. That said, there are lenders that are better suited for this.
- Download your credit reports – Check your credit files to ensure the information is accurate. If you’ve run into credit issues, you can assess what’s been recorded. Our advisors can then approach suitable lenders based on the credit issues you’ve encountered.
Concessionary purchase 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 decide what rates are offered. Nonetheless, this is the same for any mortgage type and not just concessionary purchases.
Can I buy a house from a family member at a discount?
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 members has many benefits. Parents can help their children buy their first home which can alleviate some early financial pressures.
Properties that have been 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?
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 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’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 buy a property. For instance, you may be able to add a child to the property with a joint mortgage. Joint ownership also has its risks, but parents would still own part of the property.
Can I buy the house I rent from my landlord?
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, 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 quite rare. As a result, there aren’t many lenders that offer mortgages in this area.
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 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 what they’re worth.
Will I need to pay stamp duty on a concessionary purchase?
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 £425,000.
If you’re already a homeowner and are getting a second mortgage, you’d have to 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 a lot of money, especially if you’re not a first-time buyer.
Mortgage advice for concessionary mortgages
Getting the right advice can make or break your mortgage deal. A concessionary deal can be varied in terms of the seller, the buyer and the discount involved. This is 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.
About the author
Martin is a senior mortgage advisor and has held a CeMAP qualification for over 15 years while also completing an MBA in Global Banking & Finance.