There are many different reasons why you may choose to buy from a friend or family member. You may be able to save money on peripheral costs, such as by avoiding estate agents’ charges or reducing solicitors' fees.
Another benefit is that the vendor may choose to sell to you below market value. This is called a concessionary purchase, or below market value purchase (BMV). Buying a house from parents below market value is more common than you might think these days, and can be a great way of keeping the home in the family.
Are there specific mortgages for buying property from family?
While you won’t typically find a product specifically labeled a "Family Member Mortgage," lenders use specialised criteria for these transactions, often referred to as a concessionary purchase. If your relative is selling the property to you at a discount, most lenders will treat the difference between the sale price and the market value as your deposit. This is known as gifted equity, and it allows you to access standard mortgage products without needing to provide a cash deposit of your own.
However, the "standard" nature of the mortgage depends heavily on the level of the discount and your relationship with the seller:
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Standard Residential Mortgages: If you are buying the home to live in and the discount is generally between 5% and 30%, you can often access traditional fixed or variable rate products.
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Regulated Buy-to-Let Mortgages: If you intend to buy the property from a family member and then rent it back to them, you will require a specific regulated buy-to-let mortgage. These are different from standard investment mortgages because they involve family tenancies, which carry stricter regulatory oversight.
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Family Assistance Products: If you aren't receiving a discount on the price but still need help, you might look at a joint borrower sole proprietor (JBSP) mortgage. This allows a family member to support your affordability by being on the mortgage without being named on the property deeds.
Because every lender has different rules regarding which family members they accept - some sticking to immediate family and others being more flexible - it is vital to match your specific family dynamic to the right lender's criteria.
What is a concessionary purchase?
A concessionary purchase is any property purchased below market value. This could include buying a property from a member of your family if they give you a discount. Another good example of a concessionary purchase is the right to buy scheme, which allows you to use a discount provided by your council landlord on the market value, instead of a cash deposit.
When it comes to buying from family members, if they offer to sell you their home below market value, this is seen as a discount, and therefore becomes a concessionary sale. Market value is determined by an estate agent. If a friend or family member chooses to sell the property to you at a price below that value, they are effectively gifting you the difference.
Mortgage lenders will see this as gifted equity, because, in theory, you already own the element of the property value that’s been gifted to you. This means you won’t usually need to provide a cash deposit, which enables you to take out a smaller mortgage.
However, it’s important to be aware that when you apply for a mortgage, the Lender’s Surveyor won’t necessarily consider the property as the same market value as the estate agents. If the surveyor thinks the discounted price is closer to the real market value, this could reduce the value of your gifted equity.
Gifted equity example
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Your sibling's property is valued at £300,000
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They agree to sell to you for £250,000
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They are effectively gifting you £50,000
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The lender sees this as a £50,000 deposit, meaning you only need to borrow £250,000 at around 85% LTV
|
Feature |
Buying on Open Market (At Market Value) |
Buying from Family (Discounted) |
|
Property Market Value |
£300,000 |
£300,000 |
|
Sale Price |
£300,000 |
£250,000 |
|
Gifted Equity (Discount) |
£0 |
£50,000 (16.6%) |
|
Cash Deposit Required |
£30,000 (10%) |
£0 (Equity covers it) |
|
Mortgage Amount |
£270,000 |
£250,000 |
Buying from family at market value
If your relative charges you the standard market value price for the property, then the fact that you’re buying from family becomes irrelevant. To be considered a concessionary purchase there would need to be a discount, so who you buy the property from will not be of any consequence to the mortgage lender.
The benefits of a concessionary purchase
There could be multiple benefits of buying a discounted property from a family member, depending on your circumstances. This may include:
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Deposit and fee savings - You won’t usually need a deposit - although some lenders may still ask for a small deposit depending on the size of the discount. You often also save estate agents fees with this type of direct sale
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Time savings - you won’t have to spend time and multiple viewings looking for the ideal home
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Trust and knowledge - You’ll know the property better than one on the open market and typically trust the sellers more than you would a stranger
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Potential interest rate savings - You could benefit from better interest rates depending on the size of the deposit and how much it reduces the LTV of your deposit
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Stamp Duty Land Tax (SDLT) savings- In a concessionary purchase, SDLT is typically paid on the consideration (the amount actually paid), not the market value. This could save thousands in stamp duty charges
Can you buy a home from a family member if they continue to live there?
Usually, no. If you’re buying a property from someone, the vendor would typically move out, even if they’re family. This is to prevent a transfer of equity (properties from changing hands between occupants) without any change to who lives at the address.
If, however, you are planning on buying property from your family and becoming their landlord, this may be possible with a regulated buy-to-let mortgage. However, it’s best to speak with both a mortgage advisor for this type of transaction.
It’s also wise to speak with a solicitor, as inheritance tax rules are likely to see a regulated buy-to-let under these circumstances as a gift with reservation of benefit (GWoB). This is where if parents sell the house but continue to live there rent-free, HMRC may still view it as part of their estate when they pass away.
Can you buy a home from a family member who still has a mortgage on the property?
In theory, yes. But the sale price must be enough to cover their existing mortgage redemption, plus any early repayment charges, where relevant. In this case the maximum gifted equity they would be able to offer you would be the amount they currently own.
You cannot, however, take over their mortgage; you must start a new one.
Explore your mortgage options
Can you buy from any friend or family member?
It depends on the lender. Some lenders only allow close relatives such as parents, siblings and grandparents to offer you a concessionary purchase. However, it’s absolutely possible to find lenders who will consider a concessionary mortgage when you’re buying from aunts and uncles, cousins, step-parents or foster parents, siblings-in-law, common-law partners and even friends.
If you’re planning to buy a below market value home from a friend or non-immediate relative, it’s usually best to speak to a mortgage broker, like ourselves. We can help you secure a deal with those lenders who are more flexible to this type of arrangement.
Other implications of a concessionary purchase
There are a few more things to consider when benefitting from a below market value property from a relative, such as:
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Dual solicitor requirement: In this type of transfer of asset both parties, buyer and seller, will typically need to instruct separate solicitors. This is because using the same solicitor would be considered a conflict of interest for this type of purchase
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Deed of gift: Mortgage lenders will consider any discount on the market value of a property to be a gift, so will require a deed of gift (also known as a letter of vested interest) which guarantees that the seller is providing the discount as a gift and will not try to claim a refund at a later date. This letter also acts as an anti-money laundering (AML) check for the lender
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Transaction Under Value for Insolvency: If the person giving you a discount on the property becomes bankrupt in future, there are implications for undervaluing a property sale. The Court would appoint an Official Receiver to investigate debts, and in certain situations, they have the power to overturn an under-value transaction. Therefore, if the property is being sold to manage debts, it may be wise to pay market value to avoid any chance of this in future
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Buyer tax implications: When gifting a property, or any element of a property (i.e a discount on the market value) the 7-year rule for inheritance tax will apply. This means that after 7 years, the gift is likely to become a potentially exempt transfer (PET), which means inheritance tax is not due.
However, more importantly, if the people you’re buying from pass away within 7 years, you will owe inheritance tax on the gifted element of your home.
Inheritance tax rates
The rates vary depending on the amount of time that has passed since the transaction:
|
Years Between Gift and Death |
Taper Relief (Reduction in Tax) |
Effective Tax Rate on the Gift |
|
0 – 3 years |
0% |
40% |
|
3 – 4 years |
20% |
32% |
|
4 – 5 years |
40% |
24% |
|
5 – 6 years |
60% |
16% |
|
6 – 7 years |
80% |
8% |
|
7 or more years |
100% (Exempt) |
0% |
Seller tax implications: While much of the tax liability lies with the buyer, there are also potentially implications for the seller in some circumstances. If the property being sold is not the seller’s primary residence (e.g., they are selling a second home or a buy-to-let as a concession), HMRC treats the sale as if it happened at full market value for CGT purposes.
How we can help if you’re buying from a family member
If you’re looking for a concessionary mortgage, we’ll know which mortgage lenders will consider gifted equity from the individual you plan to buy from, no matter whether they’re your parents, distant relatives, or a family friend.
Get in touch today to speak to an expert who can offer impartial advice on this type of property sale.
FAQs
Technically, yes, you could. However, there would be no call for mortgage lender involvement in this case. It’s also important to understand that HMRC will tax the transaction based on the actual market value of the property for both capital gains and stamp duty purposes.