Concessionary Purchase Mortgages
Buying a home can be challenging, especially when it comes to saving for a deposit. A concessionary purchase mortgage offers a unique opportunity to buy a property below market value, often from a family member or landlord, using the equity in the property as a deposit.
In this guide, we’ll explore how concessionary purchase mortgages work, their benefits, and how Kerr & Watson can assist you in securing the best deal tailored to your individual needs.
What is a Concessionary Purchase Mortgage?
A concessionary purchase mortgage allows you to buy a property for less than its market value.
This type of mortgage is often referred to as a below market value (BMV) purchase or a gifted equity deposit purchase.
The difference between the market value and the purchase price is considered a gifted deposit, which can significantly reduce the amount you need to save upfront. This can be a great way to get on the property ladder with a lower deposit and can save the seller hassle in not needing to source a buyer on the open market.
How Concessionary Purchase Mortgages Work
Gifted Equity: The seller, often a family member or a landlord, sells the property at a discounted price. The difference between the market value and the sale price is treated as a gifted deposit.
Mortgage Application: You apply for a mortgage based on the discounted purchase price. The lender will use the gifted equity as part of the deposit. Not all lenders offer this so it’s important to work with a broker that can find you the best solution.
Valuation: The lender will require a professional valuation to ensure the property’s market value and the validity of the discount.
Benefits of Concessionary Purchase Mortgages
Easier Entry to the Property Market
Concessionary purchase mortgages make it easier for first-time buyers to enter the property market. By using the equity as a deposit, you can significantly reduce the amount of cash needed upfront. This can be beneficial to the current owners too that want to help a loved one or save themselves looking for a buyer with the potential of that transaction falling through.
Lower Monthly Payments
Since you are borrowing less money than the property’s market value, your monthly mortgage payments may be lower too. In this instance, this makes homeownership more affordable and manageable.
Family Assistance
This type of mortgage allows family members to help each other get on the property ladder without needing to provide cash gifts, which can be beneficial for both parties.
Find out Your Options
Types of Concessionary Purchase Mortgages
Family Concessionary Purchases
The most common type is when a family member sells a property to another family member at a discounted price. This helps the buyer enter the property market and can simplify the transaction process. This often happens when parents own an investment property and want to sell this to their children.
Landlord Concessionary Purchases
In some cases, a landlord might sell a property to a long-term tenant at a discounted price. This benefits the landlord by avoiding estate agency fees and securing a quick sale.
Employer Concessionary Purchases
Though less common, some employers offer concessionary purchase schemes as part of their employee benefits, allowing employees to buy properties at a reduced price.
Developer Concessionary Purchases
Property developers may offer discounts to promote sales, especially for first-time buyers. However, these can be more complex to secure due to potential lender concerns about property values so not all lenders will consider this.
Affordability and Credit Checks
Lenders will assess your affordability and credit history as with any mortgage application. They treat the gifted equity as they would any deposit so the affordability calculation remains the same as a standard purchase. See our Affordability Calculator for more information
Potential Challenges and Considerations
Additional Deposits
Some lenders may still require an additional deposit, even with the gifted equity. This could range from 5% to 10% of the property’s value.
Legal and Tax Implications
There are potential legal and tax implications to consider. For example, the seller may be liable for capital gains tax if the property was not their main residence. It’s advisable to seek legal and financial advice to understand these implications fully.
Lender Restrictions
Not all lenders offer concessionary purchase mortgages, and those that do may have specific criteria and restrictions. Working with a knowledgeable mortgage broker like Kerr & Watson can help make sure you are speaking with the correct lenders.
Concessionary Purchase Examples
Example
- Property Value: £300,000
- Purchase Price: £270,000
- Gifted Equity Deposit: £30,000
- Cash Deposit: £0
- Loan-to-Value (LTV): 90%
Conclusion
Concessionary purchase mortgages provide a valuable opportunity for buyers to enter the property market with less financial commitment in way of a deposit. Whether you’re buying from a family member, landlord, or through an employer scheme, this type of mortgage can offer significant benefits.
At Kerr & Watson, we specialise in helping clients navigate the complexities of concessionary purchase mortgages. Our expert advisors are here to guide you ensuring you secure the best deal tailored to your needs.
