Introduction
We recently helped our customers arrange a buy-to-let mortgage to purchase a property from a family member in Margate, Kent, at a price below its market value.
The main challenge was finding a lender willing to accept a concessionary purchase, where the discount provided by the family member would be used as the entire deposit. Our customers were also first-time landlords, which restricted the lenders available.
We arranged a two-year fixed-rate, interest-only buy-to-let mortgage with NatWest, allowing our customers to use the gifted equity towards the purchase without needing a separate cash deposit.
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The Scenario
Our customers were existing homeowners looking to purchase their first investment property in Margate.
The property had been inherited by a family member, who agreed to sell it to our customers at a discounted price.
The property was valued at approximately £330,000, but our customers were purchasing it for £240,000.
This created a £90,000 difference between the market value and the purchase price, which could potentially be used as their deposit through a concessionary purchase arrangement.
The main mortgage figures were:
| Detail | Case information |
| Property location | Margate, Kent |
| Mortgage type | Concessionary buy-to-let purchase |
| Market valuation | Approximately £330,000 |
| Purchase price | £240,000 |
| Gifted equity | £90,000 |
| Mortgage required | Approximately £240,000 |
| Loan-to-value | Approximately 73% |
| Lender | NatWest |
Neither applicant had previously owned a rental property, although they already owned their residential home.
One applicant was a self-employed company director receiving income through salary and dividends, while the other was employed.
The property had also undergone substantial refurbishment, including improvements to its heating, electrical systems and energy efficiency, in preparation for letting.
The Challenge
The main difficulty was finding a buy-to-let lender whose criteria could accommodate the purchase structure and our customers’ circumstances.
Using gifted equity instead of a cash deposit
Most buy-to-let purchases involve a deposit paid from the buyer’s own funds, alongside the mortgage.
However, our customers were buying the property from a family member for £90,000 less than its market value.
They wanted to use this discount as their entire deposit, rather than contributing additional cash towards the purchase price.
This arrangement is known as a concessionary purchase.
Not all lenders accept concessionary purchases, and some have restrictions on whether a gifted equity discount can replace a cash deposit.
We therefore needed a lender that would assess the borrowing against the property’s market valuation while accepting the family discount as the deposit.
First-time landlord status
Although our customers already owned their home, neither had experience as a landlord.
Some buy-to-let lenders restrict applications from first-time landlords or have additional eligibility requirements.
Finding a lender willing to accept both first-time landlords and a concessionary purchase reduced the available options.
Self-employed income and existing commitments
One applicant was a company director with two years of trading history, receiving income through a combination of salary and dividends.
We needed to establish how the lender would assess this income alongside the second applicant’s employed salary.
Our customers also had existing financial commitments that needed to be declared and accounted for during the application.
The challenge was finding a lender that could accommodate all these circumstances together, rather than focusing on the deposit arrangement alone.
What We Did
We began by reviewing the proposed purchase, our customers’ financial circumstances and the condition of the property.
The concessionary purchase structure was the first issue we investigated because it had a significant impact on lender selection.
We researched mainstream and specialist buy-to-let mortgage criteria, focusing on lenders that could accept a gifted equity deposit alongside applicants purchasing their first rental property.
We identified NatWest as a potential option and contacted the lender’s Business Development Manager before submitting the application.
This allowed us to discuss the family purchase arrangement and confirm that the lender could consider the gifted equity structure and first-time landlord status.
We then reviewed the supporting information required for the mortgage application.
For the self-employed applicant, we obtained two years of tax calculations and tax year overviews to evidence their income.
We also reviewed bank statements, existing financial commitments and supporting details relating to the property’s refurbishment.
The refurbishment included electrical rewiring, a new central heating system, boiler replacement and energy efficiency improvements.
We gathered information about these works to support the lender’s assessment of the property and its proposed use as a rental investment.
We also coordinated the relevant requirements with our customers’ conveyancing solicitors, as the legal arrangements needed to reflect the concessionary family purchase.
By clarifying the unusual elements of the transaction with the lender in advance, we could prepare the application with the necessary supporting information and address potential questions upfront.
The Solution
We recommended a two-year fixed-rate buy-to-let mortgage with NatWest.
The mortgage was arranged on an interest-only basis over a 30-year term, with borrowing of approximately £240,000 before any fees added to the loan.
NatWest could accept the £90,000 concessionary purchase discount as the deposit, meaning our customers did not need to provide a separate cash deposit towards the purchase price.
The interest-only structure also matched their preference for keeping monthly mortgage outgoings lower during the initial investment period.
The selected arrangement permitted mortgage product fees to be added to the borrowing, helping our customers preserve their available cash reserves.
As this was an interest-only mortgage, the capital balance would still need to be repaid at the end of the mortgage term.
Why This Solution Worked
NatWest was suitable because its lending criteria accommodated the combination of circumstances involved in this purchase.
Importantly, the lender could consider:
- A concessionary purchase from a family member.
- Gifted equity being used as the entire deposit.
- Applicants becoming landlords for the first time.
- Income from both self-employment and employment.
- The required borrowing against the property’s market valuation.
The key was identifying a lender that could accept the whole transaction, rather than one that satisfied only some of the requirements.
Discussing the case with the lender before submitting the application also helped establish how the purchase would be assessed.
The Result
We successfully arranged the required buy-to-let mortgage with NatWest.
Our customers secured an interest-only mortgage with an initial two-year fixed rate, allowing the discounted family purchase to proceed using the gifted equity as the deposit.
The lender accepted both the concessionary purchase arrangement and our customers’ first-time landlord status.
This addressed the main lending difficulties and provided the mortgage finance required for their first buy-to-let investment.
What This Case Shows
This case demonstrates that it can be possible to purchase a buy-to-let property from a family member below market value without providing a separate cash deposit.
Where a lender accepts a concessionary purchase, the difference between the agreed purchase price and market valuation may be considered towards the deposit.
However, lenders have different rules regarding gifted equity, family transactions and landlord experience.
For first-time landlords in particular, it is important to establish whether the lender can accept both the purchase structure and the applicants’ circumstances before proceeding with an application.
Need Help with a Concessionary Buy-to-Let Purchase?
If you are looking to purchase an investment property from a family member, use gifted equity towards a deposit or arrange your first buy-to-let mortgage, Kerr & Watson can help.
We provide independent, whole-of-market mortgage advice and can review which lenders may be suitable for your circumstances.
Contact Kerr & Watson to discuss your buy-to-let mortgage options.
