Are you looking for an affordable way to purchase a home? If so, a concessionary purchase mortgage might be for you.
In this guide, we will discuss concessionary purchase mortgages, the rules about getting one, and related information that should be useful to you.
If you have any questions after reading this guide, get in touch with our expert team and we will advise you further.
What is a concessionary purchase mortgage and how do they work?
A concessionary purchase mortgage is a mortgage that is used to buy a property being sold at below-market value.
You may be eligible for one of these mortgages if you are able to buy a property as a concessionary purchase (a below-market value purchase), i.e a property offered to you at a discounted price.
A concessionary purchase often takes place between parents and their children but this isn’t always the case. You might also be offered a property at a discounted price by your landlord, employer, property developer, or another family member.
Parents/Other family members
Recognising how difficult it is for their children to get on the property ladder, many parents agree to sell their homes to them at less than the market value. Many lenders will offer a concessionary mortgage to first-time buyers buying from a family member and most lenders will agree to concessionary purchases between grandparents and their grandchildren too.
Some lenders will agree to give a mortgage if the concessionary purchase is between other family members, such as an aunt and uncle selling their home to a nephew or niece. But as only a handful of lenders offer mortgages on this basis, the support of a specialist mortgage advisor may be needed.
A landlord wanting to avoid the stress of selling their property on the open market might wish to make a private sale by selling it to their tenant at a price less than the market value.
However, mortgage providers will usually have conditions in place before agreeing to give a concessionary mortgage to the borrower.
Typical conditions set by lenders include:
- The tenant must have lived in the property for at least a year
- The discount offered by the landlord can’t be below a certain percentage (often 5%-10%)
- The borrower must pay a deposit of at least 5%
Although these conditions are common, they might not be the same for every lender. Some lenders might agree to a concessionary mortgage if the discount exceeds 10%, for example, while others will waive the need for a physical mortgage deposit altogether.
It’s important to note that discounted purchases between landlords and tenants are quite rare so there aren’t many lenders offering concessionary mortgages on this basis. However, the team at YesCanDo Money can help you get a mortgage if you have been offered a concessionary purchase by your landlord.
An employer might be willing to sell a property to an employee at a discounted sale price but to avoid disputes on ownership, they will need to acknowledge that the discount is a gift and that there are no conditions attached to it. This acknowledgement is done in writing through a contractual agreement known as a ‘waiver of rights.’
A developer wanting to make a quick sale on one or more of their properties might also offer buyers a discounted purchase price. However, it’s sometimes difficult to find a lender who will offer a concessionary mortgage on this basis as some will worry the discounted price is due to problems with the property.
How to get a concessionary purchase mortgage
If you have been offered a property at a discounted price, the mortgage process is pretty much the same as it is for buying a property at full market value.
However, some lenders will want to know why the property is being discounted at less than its monetary value before agreeing to lend you a mortgage. If they are satisfied that you aren’t buying a money pit, your mortgage chances will be vastly improved!
Not every lender offers concessionary mortgages but there are plenty that does, and you can access these with the help of a concessionary purchase mortgage advisor from our team. We will search the market on your behalf to find the most suitable lenders and will hone in on the lender that can give you the best deal possible.
Once we have found you a lender that conditionally agrees to a mortgage, you will need to get your paperwork together as part of the mortgage application process. We detail the paperwork you will need in the mortgage guide below so have a read to learn more.
Of course, you could try to get a mortgage without the help of a mortgage broker, but all of our mortgage advice and support is free. As we know which lenders provide deals with the lowest concessionary mortgage rates, you can save both time and money if you decide to use our services.
What impacts eligibility?
Before agreeing to give you a mortgage, lenders will want to make sure you meet their eligibility criteria.
Factors that could impact your eligibility include:
- Income: You need to be earning enough to make your mortgage repayments so lenders will need to see proof of your income when you make your application.
- Property type: You may be ruled out of a mortgage if you want to buy a listed building or a property that is made from non-standard construction materials (such as anything that doesn’t have brick or stone walls).
- Deposit amount: How much deposit you are asked for will depend on the lender. Some won’t require you to make your own deposit for a concessionary purchase while others might ask for 5% or more.
- Age: The minimum age you can be when applying for a mortgage is 18 although some lenders will only consider your application if you’re 21 or over. Most lenders set a cap for the maximum age for a mortgage of 70 years old (the age you need to be at the end of your mortgage term) but there are lenders who set higher age caps or who don’t set any age cap at all.
- Credit history: If you have a bad credit score you may be turned down for a mortgage although this isn’t the case for all lenders. It’s worth improving your credit rating if it is low as you will then gain access to more affordable mortgage deals with lower interest rates.
These are the main factors that could affect your eligibility for a mortgage but as every lender has their own criteria in place, it’s wise to use the services of a mortgage broker who will help you find the right lender for your set of circumstances.
What should I do before applying for a concessionary purchase?
Before you make your mortgage application, the following steps are advised.
Make sure both you and the seller understand below-market-value mortgages
Concessionary mortgages come with terms and conditions attached so you and the seller need to be aware of these before you come to an agreement. It may be wise for you and the seller to take independent legal advice so you are both aware of the legal implications surrounding a concessionary purchase.
Review your credit files
When assessing your mortgage application, your lender will check your credit file to learn more about your credit history. If your credit score is low, your application may be turned down or you may be ruled out of the best mortgages on the market.
Before making your application, obtain credit reports from the main credit agencies – Experian, Equifax, TransUnion, and Crediva. Alternatively, you could use Checkmyfile, as this service gives you access to a multi-agency credit report that is based on the data held about you from the aforementioned agencies.
If you have a low credit score on any of your reports, you should do what you can to improve it before you make your application.
Deposit size and purchase price
You don’t always need to raise funds for a deposit when making a concessionary purchase. This is because some lenders will give you a mortgage for 100% of the property purchase price if the overall loan-to-value (LTV) is equal to their minimum deposit requirements (typically around 85-90% of the market value).
In such cases, lenders will consider the difference between the property value and the purchase price as the ‘deposit.’
This isn’t the case for all lenders as some might still require you to stump up some of your own cash for a deposit while others won’t accept a concessionary purchase at all.
Loan example for a family concessionary purchase
The greater the savings made on the discounted sale price of the property, the greater savings you can make on the size of the mortgage loan.
Example: Your family members are willing to sell you a property valued at £200,000 but with a discounted selling price of £170,000. Over a 25 year mortgage term at a rate of 5% interest, you will save a total of £22,613 in interest. This including the £30,000 you have already saved on the discounted property value will save you a total of £52,613.
Can I get concessionary purchase discounts on the open market?
It’s sometimes possible to buy a discounted property from a seller on the open market. However, complications can arise when trying to obtain a mortgage.
This is because some lenders will refuse a buyer a mortgage if they suspect the property has been discounted because of a structural problem or some other kind of issue. Other lenders might agree to a mortgage but they might ask for a substantial mortgage deposit to offset any risk that might come with the property.
A mortgage broker can help so if you’re looking to buy a house at a discounted property price, talk to us and we will find the best lender for you.
What are the limitations of a concessionary mortgage?
Concessionary mortgages provide an affordable way to purchase a home, especially for first-time buyers, but it’s important to highlight their limitations. These include:
The discount must be a gift and not a loan
A concessionary mortgage is often referred to as a gifted equity deposit mortgage. This is because the discount offered by the seller must be given as a gift absolute, which means it’s not a loan or a share in the property. This is similar to a Gifted Deposit Mortgage the only difference being that the gifted deposit is raised through the equity and discounted purchase price of the property.
This is something the seller needs to be aware of before relinquishing ownership of the property. If they would rather share the property and not sign it over completely, they could add the other party to their mortgage through a Transfer of Equity.
Some lenders won’t allow your parents to live in the property after the sale
Most lenders prohibit parents from living in a property after selling it to their children. This is due to concerns around ownership and residence rights should the property ever be repossessed. This isn’t true of all lenders as some will allow parents to remain in the property but only on the condition that they sign a waiver of rights.
How to choose the right concessionary purchase mortgage lender
When considering mortgage lenders, it is vital that you choose the lender that will offer you the lowest possible mortgage rates for somebody in your situation.
As mortgage rates depend on all the usual factors attributed to standard mortgages, including property type and credit history, you may be offered an expensive mortgage by one lender but a far more affordable one from another.
To maximise your chances of mortgage approval and an excellent mortgage deal, get in touch with our team of expert mortgage brokers today. YesCanDo Money is a broker that can help you find the best deal mortgage from the most suitable lender after learning about your circumstances. Get in touch with our team for a no-obligation chat if you would like to know more and one of our specialist advisors will discuss all of your mortgage options with you.
Speak to the YesCanDo experts about your concessionary purchase
If you are looking to buy a concessionary purchase, be that from a family member or otherwise, get in touch with our expert team. We will offer you bespoke advice to meet your particular needs and will search the market for the lender that will guarantee you an attractive mortgage offer.
Call 033 0088 4407 or use WhatApp or our callback form below to arrange an appointment with a member of our friendly mortgage team.
Lenders have their own criteria when assessing bad credit cases so some will reject your application if your credit score is low whereas others will consider mortgage applications if credit issues aren’t too severe.
We know which concessionary mortgage lenders will consider applicants with bad credit so speak to a member of our team if this applies to you.
If you’re a first-time buyer and you are buying a property at or below £50,000, you don’t have to pay stamp duty.
If you’re not a first-time buyer, you won’t be exempt from paying stamp duty. But if you are buying a concessionary purchase, the stamp duty will be calculated on the sale price of the property and not its market value.
Below highlights the 2% stamp duty that would be charged on a property worth £200,000 when sold at or below market price.
As you can see, buying a property at £30,000 under market value will save you £600 in stamp duty land tax. This including the discounted property price will save you £30,600.
A property sold at £200,000 = £4,000 stamp duty
A property sold under market value at £170,000 = £3,400 stamp duty