Concessionary Purchase Mortgages
For many, the biggest challenge in buying a home is saving for a deposit. If you're finding this step difficult but are keen to get on the property ladder, a concessionary purchase mortgage could provide an alternative route to homeownership.
This guide will walk you through everything you need to know about concessionary purchases, including how they work, the pros and cons, and how to secure one. We’ll cover:
What are the different types of concessionary purchase mortgages?
Eligibility requirements for a concessionary purchase mortgage
Can I get a concessionary purchase mortgage if I have bad credit?
What is a concessionary purchase mortgage?
A concessionary purchase is when you buy a property for less than its market value, with the discount typically gifted by a family member. In many cases, this reduction can be used to cover part, or even all, of your deposit.
Because of this, it is sometimes referred to as a below-market-value purchase or a gifted equity deposit mortgage. A concessionary purchase mortgage is the type of loan designed specifically to facilitate this kind of transaction.
How do concessionary purchase mortgages work?
Concessionary purchase mortgages work much like standard mortgages, with the key distinction being that the deposit comes from the equity provided by the property discount. To proceed, you’ll need a seller willing to offer you a property at a reduced price.
For instance, if your parents decide to sell you their home, valued at £200,000, for £150,000, you effectively receive a £50,000 discount. You can then request a lender to recognise this discount as part or all of your deposit.
The property can be used either as your primary residence or for buy-to-let purposes, but one limitation is that the discount must be a genuine gift. Therefore, it cannot be a loan, a future repayment agreement, or a retained financial interest in the property.
What are the different types of concessionary purchase mortgages?
There are several situations where a concessionary purchase mortgage might be required, including:
Family concessionary purchase: This is the most common type, usually involving a family member (often parents) selling a home at a reduced price to help a relative, such as a child, get onto the property ladder.
Landlord concessionary purchase: If your landlord decides to sell the property, they may offer you a discount to avoid the time and costs of listing it on the open market. This is more likely if you’ve been a long-term tenant.
Employer concessionary purchase: Some employers might offer a property at a reduced price or on better terms as part of an employee benefits package. However, ownership complications can arise later, so it’s essential to have written confirmation that the discount is a gift and not a loan requiring repayment.
Developer concessionary purchase: A property developer might offer a discount on a new-build home, sometimes known as a "developer’s incentive". Albeit, mortgage approval can be tricky, as lenders may question the developer’s reasons for the reduction, such as potential defects or slow sales.
Open-market concessionary purchase: Occasionally, a seller on the open market might agree to a price reduction. Although, securing a mortgage in this scenario can be difficult, given that lenders may suspect the discount is due to issues with the property, such as structural defects.
Eligibility requirements for a concessionary purchase mortgage
As with any mortgage, lenders assess several factors to determine your eligibility. These include:
Deposit size: In a concessionary purchase mortgage, your deposit is the equity provided by the discount on the property. Lenders will consider this when evaluating your application.
Affordability: Your income plays an important role, as lenders need to ensure you can meet your monthly repayments. They will also assess the mortgage term - whether you plan to repay it over 25 years or a shorter period, such as 10 years - to confirm affordability.
Property condition: If the lender considers the property too risky, perhaps due to structural issues or concerns about its marketability, this could impact your eligibility. This is particularly relevant in cases where a developer offers a discount, as lenders may question the reasons behind it.
Can I get a concessionary purchase mortgage if I have bad credit?
Having a poor credit score doesn’t automatically disqualify you from getting a concessionary purchase mortgage. While lenders do assess your credit history, it is just one of several factors they consider when making a decision.
That said, if you have bad credit, you might face additional requirements and are likely to be offered higher interest rates or less favourable terms. Each lender has different criteria, so exploring specialist mortgage providers may improve your chances.
If you want to get an idea of your current financial standing before you apply for a mortgage, you can use our free credit check tool (£14.99 per month after the free 30-day trial). Using it will help you to see any possible mistakes or fraudulent activity on your profile, so you can easily handle such issues. The trial and subscription can be cancelled at any time.
Pros and cons of a concessionary purchase mortgage
Advantages:
Purchase a property below market value.
Potentially avoid the need for a deposit.
Access more competitive mortgage deals due to a lower loan-to-value (LTV) ratio.
Keeps the property within the family.
Won’t have to move house if buying from a landlord.
Landlords can save money and speed up the sale process.
Disadvantages:
While a discount should reduce stamp duty, non-first-time buyers might still need to pay it based on the original market value.
If the property was a second home or buy-to-let, the seller may be liable for Capital Gains Tax (CGT) on its full market value.
Inheritance Tax could apply if the seller passes away within seven years of the sale.
Parents or family members selling the home might not be allowed to continue living in it after the sale.
If purchasing from your landlord, you may struggle to obtain a buy-to-let mortgage.
Who offers concessionary purchase mortgages?
Not all lenders offer concessionary purchase mortgages, so finding the right provider can take time. As such, expert advice is vital here. Working with a specialist mortgage broker can help you navigate your options and secure the best deal for your circumstances.
Brokers also handle the entire application process, managing all the paperwork, liaising with lenders, and ensuring everything runs smoothly, ultimately saving you time and reducing stress.
At The Mortgage Genie, our brokers have extensive experience in concessionary purchases and can connect you with the most suitable lenders. To find out how we can help, get in touch by calling 01915809890 today. And why not see how much you could borrow up to today by using our mortgage calculator?
This information is a guide only and should not be relied on as a recommendation or advice that any particular mortgage is suitable for you. All mortgages are subject to the applicant(s) meeting the eligibility criteria of the specific lender. You should make an appointment to receive mortgage advice which will based on your needs and circumstances.