Concessionary Purchase Mortgages

A concessionary purchase is the mortgage industry term for any property purchase that goes ahead at below the agreed market value (at a discount). One example might be typically buying a property from parents at a discounted price.

This type of sale can be a lifesaver, especially for first-time buyers, as they don’t always need a deposit. However, each lender has their own criteria based around below market value purchases. Some won’t consider them at all, and others only allow certain types.

We look at the different types of concessionary home purchase, which lenders are most likely to accept them, and why it’s a good idea to consult with a mortgage broker in these circumstances.

What is a concessionary purchase mortgage?

Concessionary purchase mortgages are used to buy properties at below market value. The term below market value simply means, at a discount of the recommended price. Sometimes they are referred to as gifted equity mortgages, although this is most common when the discount comes from family.

There are a number of scenarios where sellers may offer a discount on their property,for example:

• A sales between family members where the seller offers the buyer a discount

• A sale between strangers where the seller is keen to sell quickly so agrees to reduce the asking price to below the typical market value

• A property is being sold at auction, where they are typically below market value

• A landlord selling off a portfolio property to one of their tenants at a reduced price, for example, if the tenant has put money into the home

• A sale between a property builder and buyer, as an incentive to buy from them

• A sale between a member of service personnel and their employer (i.e the army) if they buy their forces home

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Standard vs. Concessionary Purchase

The below table shows how the process differs slightly when taking out a mortgage to buy a property at a price below market value:

Types of purchases that happen below market value

 There are some subtle differences between the types of concessionary purchase mortgage, and not all lenders are accepting of all of them. Equally, two lenders that both accept family concessionary purchases may have very different criteria to each other:

Family Concessionary Purchase (Gifted Equity)

While any family member could sell you their home at a discount, many lenders only accept this type of sale from parents and grandparents. However, there are lenders who are happy to consider other family members. For example, Aldermore will consider Aunts and Uncles.

The majority of lenders accept the discount (or the difference between the market value and the price you buy at) instead of a deposit. However, depending on the circumstances you may also need to put down a small cash deposit.

As with gifted deposits, the family member providing the discounted property must give confirmation, often in writing, that the discount is a gift. There must be no intention to claim money back from, or any ownership of the property in future.

Landlord Concessionary Purchase

Many landlords have found it more efficient to sell off properties in their portfolio to existing tenants at a discount, rather than spending time and money on advertising them for sale on the open market.

This is known as a ‘sitting tenant’ sale, and with recent changes to the tax laws and legal requirements around buy-to-let property investment, it has become increasingly popular.

Not all lenders consider accept this type of below market value sale, however, those that do usually require that:

• The tenant has lived in the property for at least 6-12 months

• The discount is capped at a maximum of around 5-10%

• In some cases an additional cash deposit will be required on top of the vendor gifted equity (discount)

Developer Concessionary Purchase

If you’re looking to buy a new build home, you’ll often find that property developers offer some kind of incentive. This could be cashback, free interiors, or in some cases, a discount on the property’s market value.

While some mortgage lenders accept property developer discounts as a deposit, they may also be keen to understand the reason for the sudden price drop. Some have an incentive cap of 5%, which means that if the discount is greater than this, they will potentially down value the home, rather than allowing it as a larger deposit.

Employer Concessionary Mortgage

While this is fairly unusual, certain employers, such as religious institutions or civil or service personnel, such as school caretaker, offer housing as part of their employment. If they allow their employee to purchase their employee housing at a discount, this can also be classed as a concessionary sale.

Mortgage lenders may consider this type of sale, so long as there are no terms attached to the sale. Typically the discount has to be provided as a reward, as part of their employee benefit package. This means that HMRC may see the discount as untaxed income, or benefits in kind. It’s important to seek independent legal advice if you plan on this type of purchase, to ensure you’re not stung with a large tax bill.

Open Market Concessionary Purchases

This type of purchase usually occurs when the seller is keen to move quickly. Typically this is an agreement to sell the property at a reduced price to anyone, not necessarily a specific buyer.

As with other purchases below market value, lenders will need to understand the reason for the discount, and may request in-depth valuations to ensure there are no underlying issues with the property. In many cases lenders will still require that you have a deposit for this type of purchase, as it’s likely they will base the mortgage on the purchase price, rather than the actual market value.

Right to Buy (RTB) / Right to Acquire

These government schemes are a concessionary purchase from a local authority or housing association. They allow tenants to use a discount, based on their time spent in the property, as a deposit.

While all lenders that accept this type of discount as a deposit, there is a clause that if you sell within a certain number of years you’ll need to repay the deposit. Discounts have been significantly reduced in recent years, and the government has recently committed to reducing them further in the coming years.

You can find out more about these schemes on our guide pages to Right to Buy and Right to Acquire properties.

Concessionary purchase mortgage criteria

Lenders may be more critical of the property when it’s sold at a discount, as it raises concern about the quality of the property. Usually they will also prefer that the property is not of non-standard construction.

Lenders almost always require the seller to get a separate solicitor to ensure they aren't being pressured into giving up their equity, and that they take independent legal advice regarding any potential tax liabilities.

There may also be additional concerns about the legality of the transaction, as such sales are more vulnerable to fraud. They may also require the borrower to take out gifted equity indemnity insurance. This protects the lender if the seller goes bankrupt shortly after the sale, as creditors might try to reclaim the "gifted" value.

Other criteria tend to relate to which specific types of concessionary sale they allow, and whether or not they are willing to use the discount as a deposit.

Below you will find the lending criteria surrounding concessionary purchases from the top 10 UK lenders:

How a broker can help

At Money Helpdesk, our team of experts have dealt with many concessionary purchase mortgages of all different types. As a whole of market brokers, we have access to thousands of mortgages from over 90 lenders, so can quickly find the most likely to accept the below market value purchase for your precise circumstances.

Get started here to speak to one of our helpful advisers about your concessionary purchase mortgage today.