Concessionary Purchase Mortgage

As property prices across the UK continue to rise, the biggest hurdle in getting a mortgage is saving up for the deposit.

However, if you’re lucky to get a discount on the property’s market value, then this problem might be solved. 

You only need a concessionary purchase mortgage to pay the remaining amount to the seller, and the property is yours for the taking.

But what is a concessionary purchase mortgage anyway, and how does it work? 

Our concise guide will take you through the nitty-gritty of concessionary purchase mortgages and how to use them to your advantage.

What Is A Concessionary Purchase Mortgage?

First, let’s understand what a concessionary purchase is; it’s a method where you purchase properties at prices below market valuation. This usually happens when someone gifts you the price difference or offers it at a discount. 

For example, if the property’s market value is £300,000, your parents might offer it to you at £200,000.

Such purchases are called gifted equity deposits or below-market-value purchases. In these cases, the discount you’re getting can be viewed as the deposit, and any mortgage used to fund the remainder is called a concessionary purchase mortgage.

How Does A Concessionary Purchase Mortgage Work?

Concessionary purchase mortgages are almost the same as regular mortgages, with the difference being that the discount’s equity is considered the deposit. 

The lender will calculate LTV on the present market valuation, but the mortgage will be 100% of the amount you need to pay. In most cases, you don’t need to put up any extra cash as a deposit upfront.

Here, it’s essential to understand that the amount you get as a discount must be offered as a gift. It should not be a loan or even shares in the property. 

The amount provided as a discount must not be payable later, and the seller should not have any stake in the property after the sale is complete.

At the same time, LTV calculation restrictions should be in place to ensure that the amount being lent does not exceed the lender’s maximum lending limit.

A significant drawback of this type of mortgage is that it can be challenging to understand without professional help. 

In such cases, getting support from a specialist mortgage broker with experience in concessionary purchase mortgages is best. 

The following is a simple example calculation that shows how concessionary purchase mortgages work in the UK.

Say you’re given a £200,000 market-value property at a 25% discount. The discount amount becomes  £50,000, a 25% deposit.

This means you can seek a £150,000 mortgage at 75% LTV without putting down a cash deposit. Here, the discount amount is considered to be the deposit amount. 

Remember that in exceptional cases, such as when the purchase isn’t happening through family, you might be required to deposit your own money.

Types of Concessionary Purchase Mortgages

1. Family Concessionary Purchases

This is the usual type of concessionary mortgage in which the sale takes place between family members at discounted rates or on favourable terms. 

This can help close family members get a property or transfer a property to family members.

2. Landlord Concessionary Purchases

Here, tenants can purchase a property they have rented from their landlords at discounted prices. 

This arrangement benefits both parties, allowing the tenant to buy the property and the landlord to make an easy sale.

3. Employer Concessionary Purchases

Sometimes, employers provide concessionary purchase plans as a form of employee benefit packages. 

This might involve letting employees purchase a property at a discounted price to help them get onto the property ladder. Such schemes are usually found only in certain companies or industries.

4. Developer Concessionary Purchases

Though this is much less common, developers sometimes offer discounted properties to buyers to promote purchases. Such offers are usually provided for specific properties and limited periods.

One thing to note here: lenders might be sceptical about providing a mortgage in this last case, as they might ask why the builder/developer is offering such discounts in the first place. 

In many situations, the property might have structural problems, dampness issues, or legal complexities, in which case the lenders will back down.

Concessionary Purchase Mortgage Tax Implications

One of the disadvantages of purchasing a property through a concessionary mortgage is that you might be required to pay an inheritance tax if they pass away within seven years of the purchase. 

You might also be required to pay a capital gains tax or stamp duty on the sale price.

It’s best to connect with an expert mortgage broker to know whether any of these apply to you.

Disclaimer: When it comes to taxes, this is just general advice and not to be relied upon as fact. When it comes to tax everyone’s position and circumstances are different and the rules are changing all the time. Only by seeking advice of a qualified tax professional can you be certain you are complying with all the relevant tax rules & regulations.

Frequently Asked Questions (FAQs)

1. Can I get a concessionary mortgage with a poor credit rating?

It depends on your poor credit rating. While minor problems, such as missed payments, can be overlooked by most lenders, serious issues, such as bankruptcy declarations, can be red flags.

2. Which lenders offer concessionary purchase mortgages in the UK?

The following are some lenders who offer concessionary purchase mortgages in the UK:

• Halifax 
• Barclays
• NatWest

3. Is this mortgage type available in Scotland?

Yes, concessionary purchase mortgages are available in Scotland and the rest of the UK.

4. Can a concessionary mortgage be obtained for a buy-to-let property?

Yes, it is possible, but it is much less common. Most lenders expect the loan to be for a residential purchase, but some might also accept a buy-to-let arrangement. 

But keep in mind that there might be a lot of restrictions, such as specialised LTV calculations and extra deposits. It’s best to speak with an experienced broker if you want to go down this route.

5. Is the property/discount mandatory to be a gift?

Yes, it has to be a gift, preferably from a family member. This is essential to ensure there aren’t any legal problems down the road.