Concessionary Purchase Mortgages

Concessionary purchase mortgages

A concessionary purchase typically means when you buy a property from parents or other family members at a discounted purchase price below the market value of the property. They can be a lifesaver for first-time buyers as they can help you get on the property ladder quicker, and in some cases, without having a deposit.

This type of mortgage is not straightforward and many lenders are reluctant to approve such an application. Your best chance of finding a concessionary mortgage that works for you is by working with an experienced mortgage advisor. Not only can they help you understand the process, but they will also have access to a wide range of products from different lenders.

If you are looking to buy a property from a family member, then a concessionary purchase mortgage could be the right option for you. Speak to a senior mortgage advisor today and see if you could benefit from this type of mortgage.

What is a concessionary purchase mortgage?

Concessionary purchase mortgages are mortgages used to buy properties at below market value. This type of purchase often occurs between relatives, though not always. A concessionary purchase typically means when you buy a property from a family member at a discounted purchase price below the property value.

Family Concessionary Purchase

Many parents or other family members want to help their children purchase a home, and a Family Concessionary Purchase mortgage allows them to do this. This type of mortgage recognises the expense and difficulties children face in today's property market.

Landlord Concessionary Purchase

Landlords may also want to avoid the time and expense of selling their property by selling to their tenants directly at a discounted price. These types of mortgages come with a few caveats, for example:

• The tenant may need to have lived in the property for at least a year

• The tenant may need to add a 5% deposit

• The discount is capped at a maximum of around 5-10%

This type of mortgage is relatively niche, so we recommend you work with a mortgage broker who is experienced in this area. They will be able to assess your individual circumstances and find the right deal for you.

Developer Concessionary Purchase

For new build properties, developers will sometimes reduce the property price to incentivise a quick sale. In this situation, a mortgage lender will be interested to understand the reason for the sudden price drop, and whether this is an indication of build quality

Employer Concessionary Mortgage

There are some circumstances where an employer may offer an employee a reduced price on a property. As with other types of concessionary mortgages, the mortgage lender will want to understand the reasons for the price reduction, and confirmation that there are no terms attached to the sale.

Open Market Concessionary Purchases

An open market concessionary purchase is where the vendor agrees to sell the property at a reduced price, but without any specific buyer in mind. In this situation, it's important to have your finances in order, as you'll need to be able to move quickly when a suitable property comes up.

Mortgage lenders will be keen to understand if this is an indication of an underlying issue with the property.

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Who is eligible for a concessionary purchase mortgage?

For concessionary mortgages, you can generally expect more scrutiny over the property itself, however, you'll also need to fulfil their criteria to be considered. Eligibility will vary between lenders, but typically they are concerned with:

The Type of Property - usually, the property must of standard construction, and not require any major repairs.

Your Employment Status - most lenders will require you to be employed full-time, with some also considering those who are self-employed

Your Deposit - you'll need to have a deposit of at least 5% of the price

Your Credit Record - you'll need a good credit history to be eligible for a mortgage

The Length of Mortgage Term - most lenders will only offer these mortgages for a maximum of 25 years

It's always best to speak to a mortgage broker to get an idea of what's available and to discuss your specific circumstances.

Will I need a mortgage deposit for a below market value purchase?

For some concessionary mortgage lenders, the difference between the market value and the price may act as your deposit, which means you may not need to contribute your own cash. Some lenders will still require you to put down some of your own money for the purchase, and other mortgage lenders will not consider concessionary purchases at all.

Do you pay Stamp Duty on a concessionary purchase?

For homeowners, the good news is that you'll only pay stamp duty based on the sale price of the property, as opposed to the market value. This means that not only is the price reduced, but the amount of Stamp Duty you'll need to pay is as well.

In September 2022, changes were announced to the way in which Stamp Duty is calculated. These changes will mean that, for most people, the amount of Stamp Duty they pay will be lower than it would have been under the old rules.

The tables below show the new rates of Stamp Duty:

Stamp duty in England and Northern Ireland (from September 2022)

First Time Buyer Stamp duty in England and Northern Ireland (from September 2022)

Stamp duty in Wales (from 10th October 2022)

Stamp duty in Scotland

Restrictions of a concessionary mortgage

There are certain restrictions to be aware of with these types of mortgages.

The discount must be a gift

As with gifted deposits, the price reduction must be a gift from a family member, and not a loan. This is to prevent people from using these types of mortgages to buy properties they couldn't afford otherwise.

The equity should be gifted with no strings attached or promise of future repayment.

Lenders will also need to be satisfied that the price reduction is genuine, and not just an inflated figure to reduce the amount of mortgage needed.

Your parents may not be permitted to stay on in the property

For some lenders, having your parents stay living in the property after the sale can cause complications or confusion over the ownership. This is because they could then be seen as part owners of the property, which would affect their potential future resale.

It's important to check with your chosen lender before entering into any agreement, to avoid any issues further down the line.

You'll need to show that you can afford the mortgage repayments

Even though the price is reduced, you'll still need to prove to the lender that you can afford the monthly mortgage repayments

This means having a steady income and a good credit history

You'll also need to factor in the potential for interest rate rises over the course of the mortgage term, as this could increase your monthly payments.

Can I get a concessionary mortgage with bad credit?

Bad credit will make it harder to be approved for a mortgage, regardless of the type of purchase. This is because lenders will see you as a higher risk, and will be less likely to approve your application

If you do have bad credit, there are some specialist lenders who may consider your application, but you'll probably need a larger deposit It's always best to speak to a mortgage broker to get an idea of what's available and to discuss your specific circumstances.

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