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 is a concessionary purchase mortgage?
• How do concessionary purchase mortgages work?
• 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?
• Pros and cons of a concessionary purchase mortgage
• Who offers concessionary purchase mortgages?

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.

It's worth knowing this is a genuinely different arrangement from a gifted deposit, where a family member gives you cash towards your deposit rather than discounting the property itself. The two are easy to confuse, but lenders treat them differently, so it's worth being clear on which one applies to your situation before you speak to a broker.

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.

One firm rule worth knowing upfront: the large majority of lenders require the person gifting the discount to move out of the property entirely once the sale completes. A small number of specialist lenders will consider cases where they remain, but this requires additional legal documentation and independent legal advice for both parties, and your choice of specialist lender becomes especially important in that scenario.

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, and many lenders will want to see six to twelve months of tenancy history before considering this type of application.
• 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. Many lenders require a minimum discount of around 10% of the property's market value for it to qualify as gifted equity at all, and will typically lend up to 90% of the discounted price, though the effective loan-to-value against the full market value is usually more conservative than that figure suggests.
• 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.
• The seller vacating the property: As above, most lenders require the person gifting the discount to move out on completion. This is treated as a hard eligibility requirement by most lenders, not a minor detail, so it's worth confirming early if this could be a sticking point in your situation.

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.
• Stamp duty is usually calculated on the discounted price you actually pay, rather than the property's full market value, which can mean a genuinely lower bill than on an equivalent open-market purchase.

On that last point, it's worth understanding the exception: some lenders insist on structuring the transaction as a gifted deposit at the full market value rather than a true sale at undervalue, in which case stamp duty would be based on the higher figure. Which lender and solicitor you use can genuinely change your stamp duty bill here, so it's worth raising this directly, and early, with your broker.

Disadvantages

• 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, regardless of the discounted price agreed.
• Inheritance Tax could apply if the seller passes away within seven years of the sale, though the amount potentially due tapers down the further into that seven-year period the gift was made.
• Parents or family members selling the home might not be allowed to continue living in it after the sale, since most lenders require the seller to vacate.
• 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 find a suitable 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 0191 580 9890 today. And why not see how much you could borrow up to today by using our mortgage calculator?

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The above blog has information contained within which was correct at the time of publication but is subject to change.

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.