What is a Concessionary Purchase?
A concessionary purchase is when you buy a property below the market value as you are given a discount by the seller.
To do a concessionary purchase you will need a concessionary mortgage.
Concessionary purchases are usually performed by family members who want to keep properties in the property or help their family members to get on the property ladder.
When a concessionary purchase happens and you seek a concessionary mortgage, the concessionary mortgage lender will usually use the discount as your mortgage deposit but in some cases, you may be required to put down a mortgage deposit from your own savings which aren’t gifted to you by family.
This mortgage deposit which you may be required to put down for your concessionary mortgage should not be confused with an exchange deposit, which, in a standard conveyancing transaction, a buyer must pay to a seller at the point of exchange of contracts.
Concessionary purchases are also known as below market value purchases or BMV purchases and concessionary mortgages are also known as below market value mortgages or BMV mortgages.
Concessionary purchases can be seen as very tricky and you should consider getting both independent tax advice and legal advice.
Not every mortgage lender will offer a concessionary mortgage. Mortgage lenders will usually have different eligibility criteria for a concessionary mortgage whilst some mortgage lenders will insist that the discount being given still allows the property sale price to reflect what it could reasonably fetch in the open market.
Example of a concessionary purchase and mortgage
An example of a concessionary purchase could be: Your Dad has a home which is valued at £600,000 but has offered it to you at £500,000. This means you get a £100,000 discount which some concessionary mortgage lenders will accept as your mortgage deposit.
The difference between the sale price and the market value acts as the mortgage deposit and you simply need to get a concessionary mortgage for the sale price which in this case is £500,000.
A concessionary purchase could be given to you by your;
With the above, you may find some mortgage lenders who are willing to offer on a concessionary mortgage.
Concessionary purchases could also be given by the below but you may find fewer options when it comes to getting a concessionary mortgage.
In the above cases, the concessionary mortgage lender may require that you put down a mortgage deposit as the people offering the concessionary purchase aren’t within your immediate family.
What mortgage deposit do you need for a concessionary purchase?
It may be possible to get a mortgage with 100% loan to value as the discount you receive from the concessionary purchase is taken as your mortgage deposit as long as it meets the mortgage lenders minimum deposit requirement.
Some mortgage lenders will consider the discount between the market value of the property and the sale price at which you receive the property as the mortgage deposit whilst others won’t and will require you to pay a mortgage deposit.
Examples of deposit requirements with a concessionary mortgage.
If the mortgage lender accepts the discount between the market value of the property and the sale price as the mortgage deposit:
If the property is valued at £500,000
You are offered the property at £400,000
This means you have a discount of £100,000
If the mortgage lender has a mortgage deposit requirement of 10% of the property sale price which is £40,000 then the mortgage lender may consider this mortgage deposit as paid as your discount of £100,000 covers this mortgage deposit requirement.
If the mortgage lender does not accept the discount between the market value of the property and the sale price as the mortgage deposit:
If the property is valued at £500,000
You are offered the property at £400,000
This means you have a discount of £100,000
If the mortgage lender has a mortgage deposit requirement of 10% of the property sale price which is £40,000 then the mortgage lender may not consider the mortgage deposit as paid and require that you put down £40,000 from your personal savings for the mortgage.
This will essentially make the mortgage a 90% loan to value mortgage.
Inheritance tax considerations for the concessionary purchase
Because concessionary purchases are seen as gifts by HMRC there may be tax implications and it is important to seek tax advice as well as independent legal advice.
If the person gifting the property by way of the discount dies within 7 years then there may be inheritance tax obligations which you will need to consider.
How does a concessionary mortgage affect stamp duty
When doing a concessionary purchase you will be happy to know that the stamp duty will be charged on the purchase price and not on the market value.
Example a home worth £500,000 which your dad sells to you by way of a concessionary purchase for £400,000. Your stamp duty liability(if any) will be on the £400,000 purchase price and not the £500,000 market value of the property.
You can use a stamp duty calculator to see what the stamp duty costs will be on a concessionary purchase.
If the concessionary purchase is your second home then you should seek tax advice as you may be liable for capital gains tax.
Concessionary purchase conveyancers
Due to the fact that a concessionary purchase is a more specialist type of transaction you may need a concessionary purchase conveyancer to assist you with your concessionary purchase.
Can you get a concessionary mortgage with bad credit?
You may be able to get a concessionary mortgage with bad credit but the concessionary mortgage lenders may request that you put some money down as a mortgage deposit if you have bad credit.
You may also want to speak to a bad credit mortgage broker who has some experience of dealing with concessionary mortgages as they may be able to advise you on suitable concessionary mortgage lenders who may be willing to lend to you.
When considering bad credit for concessionary mortgages, bad credit includes:
A debt management plan
A home reposession
You may be able to use some of the government schemes with a concessionary mortgage but in some cases, this may not be the case due to the fact that concessionary purchases will usually be from home sellers who have properties which are not eligible for a government scheme as they are not provided through eligible scheme providers such as New build home developers, councils, housing associations etc.
New build developers do offer discounts sometimes which you could potentially get a concessionary mortgage with.
To be certain if you can use a particular kind of government scheme listed below with a concessionary mortgage you should contact the scheme provider if the home you want to buy falls within the eligibility criteria for which they will offer their scheme.
Some of the government schemes you may be able to use with a concessionary mortgage include:
- Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy ISA– gives a maximum bonus us £3,000 if you save the maximum allowed of £12,000. Before you get either you should consider which is better. Lifetime ISA vs Help to buy ISA.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership- You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy- similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy- This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy- allows you to buy your home at a discount price.
- Preserved right to buy- same as above.
- Right to acquire- same as above.
Depending on where you live, you may also be able to take advantage of home buying schemes provided by your local council. Example: In Norwich, the local councils provide the Norwich home options scheme.
Can you relatives live in the house after a concessionary purchase?
In most cases, the mortgage lender will not allow the relative to live in the house after the concessionary mortgage has been completed on and the concessionary purchase is final. The concessionary mortgage lender may prefer a vacant possession of the property which requires that the property is vacant when you move in rather than occupied.
The concessionary mortgage lender may also not consent to you building a section outside your house for your relative to be housed.
Concessionary purchases can be very tricky and you should seek independent legal advice as well as advice from a concessionary mortgage broker.
Main types of concessionary purchase mortgages
Developer concessionary purchase discounts
It is common for new build developers to offer concessionary discounts but some mortgage lender still have a maximum discount they will attribute towards your mortgage deposit but you may need a specialist mortgage broker to find you a mortgage lender who may be willing to lend to you on a property with a concessionary discount from a developer.
Mortgage lenders will also want to know why the developer wants to sell at a discount and may instruct detailed property surveys to be sure everything is fine with the property.
New build properties also have a problem with being overpriced which leads borrowers to find themselves in negative equity. This is when the mortgage is more than the property is worth as the property price falls.
This issue already limits the number of mortgage lenders willing to lend on new build properties.
Open market concessionary purchase discounts
Open market concessionary discounts are when a seller on the open market offers you a discount so big it is considered an open market concessionary purchase.
This is very rare and most mortgage lenders will want to know why this discount is being offered and investigate any relationship between you and the seller.
You may not find too many mortgage lenders who are willing to lend on an open market concessionary purchase.
If you find a mortgage lender willing to lend under these circumstances then they may insist that you place a minimum mortgage deposit down to secure the mortgage.
Family/parent Concessionary Purchase Mortgages
Parent or family concessionary purchase mortgages are mortgages which are given on concessionary purchases where the family members or parents are the ones selling the property. This is the most common type of concessionary purchase mortgage as it is the most common way family members may use to help get their family members on to the property ladder.
Landlord Concessionary Purchase Mortgages
If you have been a tenant for at least 12 months then your landlord may be willing to offer you a landlord concessionary which means you will get a discount on the property price if you wish to purchase it.
Getting a landlord concessionary mortgage may be harder as there may not be too many mortgage lenders offering these mortgages.
Landlords may offer a concessionary purchase if they don’t want to go through the stress of having to sell the property on the market or if the rent paid by the tenant over 12months or more is enough value to cover some or most of the discount given in the landlord concessionary purchase.
As the landlord concessionary mortgage will be a buy to let mortgage most landlord concessionary mortgage lenders will expect the following:
You may need to have lived in the property for at least 12 months
Some mortgage lenders may ask for a minimum discount of 5% or 10%
You may have to put down a mortgage deposit with your own cash for at least 5% or more
You may not be allowed to then move out of the property and then let it out to someone else. Ig this is the case you may struggle to find a landlord concessionary mortgage lender who is willing to lend to you.
employer property concessionary discount
It Soke employers may offer a concessionary purchase discount to an employee as a reward. A contract should be out in place highlighting that the discount is a gift and any tax implications should be sought after with the help of an independent tax advisor. The employer will also have to sign a waiver of rights stating that there are no attachments or conditions of the gift.
Considerations to take into account for a Concessionary Mortgage?
Independent legal advice
Due to the nature of a concessionary purchase, the concessionary mortgage lender may insist that both the seller and the buyer seek independent legal advice.
The person gifting must move out
Some mortgage lenders will insist that the person giving the gift moves out of the property. This is mostly due to rights to possession or ownership which could play a big factor if the property had to be repossessed by the mortgage lender.
Right to possession and ownership could play a significant factor, especially when factoring in the concessionary purchase.
If the concessionary mortgage lender allows you to stay in the property you will usually have to sign a waiver of rights.
It must be a gift
Most mortgage lenders will insist that the concessionary purchase must be labelled as a gift in the sale agreement and not a loan to avoid anyone being able to challenge their first charge mortgage.
If you don’t want to gift out your whole property then a joint mortgage with a share of equity amongst the joint owners may be more suitable.
Concessionary mortgage rates
The rates you may be offered on a concessionary mortgage may differ from one mortgage lender to the other and you may only get a good indication of what rate you may be offered after a mortgage in principe. This is because concessionary mortgage may be more complex than standard residential mortgages and the mortgage lender will need to see if you meet their eligibility requirements for a concessionary mortgage.
Once you get a concessionary mortgage you will see from your key facts illustration document what rate your mortgage will be.
You should speak with a mortgage broker who may be able to advise you on the concessionary mortgage rates you may be eligible for.
What affects your Concessionary Purchase mortgage eligibility?
Your age: most mortgage lenders will want the concessionary mortgage to end by the time you are 75
Your credit score: If you have bad credit then you may find it much harder to get a mortgage and should speak with a bad credit mortgage broker.
The property: If the property is non-standard construction then you may find that you are limited to a few mortgage lenders. If the building is also a listed building then many concessionary mortgage lenders may consider this as risky as they may not be able to sell the home if the repossess it.
Income: most concessionary mortgage lenders will look to ensure you have a suitable income.
How to get a Concessionary Mortgage
To get a concessionary mortgage you may want to first use a concessionary mortgage calculator to see what you may be able to borrow but if you look at lender websites you find that you are able to borrow varying amounts as their concessionary mortgage calculators all have their different criteria for concessionary mortgages.
Before applying for a concessionary mortgage you may want to review your credit file to be sure your credit score and history have no errors and to have some degree of certainty that you have good mortgage affordability
You can check your credit score for free at Huuti, clearscore and credit Karma UK.
A mortgage broker may then be able to help you in getting a concessionary mortgage by sourcing out the concessionary mortgage lenders who may be willing to lend to you.
A good mortgage adviser should always make things clear to you and gain your agreement before proceeding with any Concessionary mortgage Purchase applications.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.