Introduction
We recently helped our customer secure a buy-to-let mortgage to purchase a flat in Bracknell, Berkshire, as part of a financial settlement following a divorce.
The purchase was more complicated than a standard property transaction. Our customer was buying the property from his former partner and another family member, using gifted equity towards the deposit. He also had a historic missed mortgage payment, and the proposed rental income did not meet every lender’s affordability requirements.
After researching suitable lenders and discussing the circumstances in advance, we arranged a mortgage with Godiva Mortgages. The purchase successfully completed, allowing our customer to take ownership of the investment property and progress the financial settlement.
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The Scenario
Our customer was an existing landlord and self-employed sole trader with two years of trading figures available.
Following a divorce, he wanted to purchase a leasehold flat in Bracknell that was jointly owned by his former partner and another family member.
The transaction involved a concessionary purchase, where equity was being gifted by the sellers rather than our customer providing the full deposit from his own savings.
The property was valued at approximately £200,000, with £50,000 being provided as gifted equity. This meant our customer required a £150,000 mortgage, representing 75% of the property’s value.
The property had an expected rental income of £1,150 per month, which needed to support the proposed borrowing.
| Mortgage details | Information |
| Location | Bracknell, Berkshire |
| Mortgage type | Concessionary buy-to-let purchase |
| Property value | £200,000 |
| Mortgage amount | £150,000 |
| Gifted equity | £50,000 |
| Loan-to-value | 75% |
| Mortgage term | 30 years |
| Repayment method | Interest-only |
| Initial product | Five-year fixed rate |
| Lender | Godiva Mortgages |
Our customer wanted a mortgage that would accommodate the family transaction, the gifted equity and the property’s rental income while providing the borrowing needed to complete the purchase.
The Challenge
The main difficulty was finding a lender that could accept several unusual aspects of the transaction at the same time.
Concessionary purchase involving family members
Our customer was not purchasing the flat through a conventional open-market sale.
The property was being purchased from connected parties following a relationship breakdown, with gifted equity forming part of the arrangement.
Some lenders would not accept this type of concessionary purchase, while others had restrictions on who could provide gifted equity.
We therefore needed a lender comfortable with both the ownership arrangements and the proposed deposit structure.
Rental income affordability
The flat was expected to generate £1,150 per month in rental income.
Buy-to-let lenders use rental stress tests to assess whether the expected rent sufficiently covers the mortgage borrowing under their calculations.
Several lenders we considered would not provide the required £150,000 based on their rental affordability assessments.
It was important to identify a lender whose calculations supported the borrowing without requiring the shortfall to be covered through a full personal income assessment.
Previous missed mortgage payment
Our customer had also experienced a missed mortgage payment approximately 18 months earlier, which had subsequently been rectified.
Although this was an isolated historic issue, it affected the lenders available.
Some lenders had credit criteria that would not accommodate the previous missed payment, even where the rental income and property transaction were otherwise acceptable.
Coordinating the legal arrangements
The purchase also involved a financial settlement following divorce, with two separate conveyancing teams involved in the linked transactions.
The property transfer, gifted equity and settlement arrangements needed to be handled correctly to allow the purchase to complete.
What We Did
We began by reviewing our customer’s financial circumstances, credit history and the proposed property transaction.
As he was self-employed, we worked with his accountant to obtain two years of tax calculations and tax year overviews.
We also reviewed his credit report, bank statements and the property’s expected rental income.
Researched suitable buy-to-let lenders
We carried out mortgage research across mainstream and specialist lenders, concentrating on those able to consider concessionary purchases involving connected parties.
Our research needed to establish whether each lender could:
- Accept a purchase involving a former partner and family member.
- Allow gifted equity to form the 25% deposit.
- Consider the historic missed mortgage payment.
- Support the required borrowing using the property’s rental income.
- Offer the required interest-only mortgage structure.
Several lenders were unsuitable because their rental calculations did not support the borrowing, while others could not accommodate the transaction or credit history.
Discussed the case with the lender before applying
Given the combination of circumstances, we contacted the lender and its Business Development Manager before placing the application.
We explained the concessionary purchase, gifted equity arrangements and previous missed mortgage payment.
This helped us establish the lender’s position on the unusual aspects of the application before proceeding.
Coordinated the supporting information
Alongside the mortgage research, we gathered the supporting financial documents and worked with the property solicitors involved in the transaction.
With two conveyancing teams dealing with the linked arrangements, clear communication was important to ensure the mortgage and legal requirements could be progressed together.
We also took care to explain the mortgage options clearly and allow our customer sufficient time to consider the recommendation during a significant change in his personal circumstances.
The Solution
We recommended a buy-to-let mortgage with Godiva Mortgages, part of Coventry Building Society.
The lender could accommodate the concessionary purchase and the £50,000 gifted equity being provided by the sellers.
The mortgage was arranged for £150,000, representing 75% of the property’s £200,000 valuation.
Our customer selected a five-year fixed-rate mortgage on an interest-only basis over a 30-year term.
This provided the required borrowing while allowing the property purchase and associated financial settlement to proceed.
Why This Solution Worked
Godiva was suitable because its criteria accommodated the main challenges together, rather than requiring the transaction to be changed to meet a lender’s individual restrictions.
In particular, the lender:
- Accepted the concessionary purchase involving connected parties.
- Allowed the gifted equity to be used towards the deposit.
- Could consider the previous missed mortgage payment.
- Passed the rental affordability assessment using the anticipated rental income.
- Offered the interest-only mortgage structure our customer required.
The combination of these factors was important. A lender meeting the rental calculations alone would not have been suitable if it could not also accept the gifted equity and purchase arrangements.
The Result
Our customer successfully secured the £150,000 buy-to-let mortgage with Godiva Mortgages, and the purchase completed.
This enabled him to acquire the Bracknell flat, complete the associated financial settlement and add the property to his investment portfolio.
The customer was happy with the service provided, and we established an ongoing relationship to review his home and contents insurance requirements.
What This Case Shows
This case demonstrates that a concessionary buy-to-let purchase can involve more than simply finding a lender willing to accept a gifted deposit.
Where a property is being purchased from a former partner or family member, lenders may take different approaches to the transaction, particularly when the deposit comes from equity gifted by the sellers.
Rental affordability and credit history can introduce further restrictions.
In this case, researching the different requirements together and discussing the unusual circumstances with the lender in advance helped us identify a suitable mortgage and progress the transaction through to completion.
Need Help with a Concessionary Buy-to-Let Purchase?
If you are purchasing an investment property from a family member or former partner, or need a mortgage using gifted equity, Kerr & Watson can help review your options.
We provide independent, whole-of-market buy-to-let mortgage advice and can investigate lenders whose criteria may accommodate more complicated property transactions.
Whether you need mortgage advice in Bracknell or elsewhere, contact Kerr & Watson to discuss your circumstances and the options available.
