Mortgage for a concessionary purchase

A concessionary purchase mortgage represents a unique opportunity within the realm of property buying, often allowing family members or, in some cases, non-family members to purchase a property at a price below the current market value. This might occur when a family member wants to support a relative in buying a home or under specific arrangements between landlords and tenants.

The concessionary purchase process is often accompanied by specialised mortgage products designed to facilitate these types of transactions. While offering distinct advantages, such as potentially reduced deposit requirements and increased accessibility to property ownership, concessionary purchase mortgages also come with their own complexities and considerations.

From understanding eligibility criteria and legal implications to navigating various lenders’ offerings, concessionary purchase mortgages require careful planning and often the guidance of specialised professionals like mortgage brokers or financial advisors.

Whether considering a concessionary purchase as a buyer or a seller or simply exploring the concept, understanding the nuances of concessionary purchase mortgages can provide insights into a valuable avenue within the property market, this guide aims to delve into various aspects of concessionary purchase mortgages, shedding light on common questions, considerations, and practicalities involved in this unique form of property acquisition.

What is a concessionary purchase mortgage?

A concessionary purchase mortgage is a mortgage that is used to finance a concessionary purchase, which is when a property is sold at a price below its market value. This can often occur between family members, such as parents selling a property to their children at a reduced price.

In such cases, lenders may offer a concessionary purchase mortgage that takes into account the true market value of the property, not just the reduced purchase price. This can allow for a higher loan-to-value ratio (LTV), meaning the buyer might be able to borrow more than they would with a standard mortgage.

Some lenders may have specific products or criteria for concessionary purchase mortgages, and they may require evidence of the relationship between the buyer and seller, a valuation to confirm the market value of the property and details of the discount being applied to the purchase price.

It’s important to note that the rules and practices around concessionary purchase mortgages can vary between different lenders and jurisdictions, so seeking professional financial advice is generally recommended to understand the specific options and requirements in your area.

How do concessionary mortgages work?

Here’s a general outline of how they work:

Agreement between parties: The buyer and seller agree on a purchase price below the property’s current market value. For example, parents might decide to sell their house to their child at 80% of the market price.

Application to the lender: The buyer applies for a mortgage. In the application, they will explain the nature of the concessionary purchase and provide information on the relationship between buyer and seller.

Valuation: The lender will typically have the property professionally valued to confirm that the selling price is indeed less than the market value.

Loan amount: If the mortgage is approved, the loan amount will usually be based on the lower of the purchase price and the valuation. However, in some cases, lenders may offer a loan based on the higher market value, resulting in a higher loan-to-value ratio (LTV). This could potentially reduce or even eliminate the need for a deposit, depending on the lender’s policies.

Completion: If the mortgage application is approved and all other legal requirements are met, the sale can proceed. The buyer will then repay the mortgage in line with the terms agreed with the lender.

How can I qualify for a concessionary purchase mortgage?

Qualifying for a concessionary purchase mortgage can be similar to qualifying for a standard mortgage but with some additional considerations due to the nature of the transaction. Here’s a general guide to the process, although requirements may vary between lenders and jurisdictions:

Relationship with the seller: Concessionary purchases often occur between family members, so you may need to provide evidence of the relationship.

Property valuation: Lenders typically require a professional valuation to verify the property’s market value and the amount of the concession.

Deposit requirements: Depending on the lender and the amount of the concession, you may still need to provide a deposit. Some lenders may offer a higher loan-to-value ratio (LTV) for concessionary purchases.

Income and credit assessment: As with any mortgage, you’ll need to demonstrate that you have the income and creditworthiness to meet the monthly repayments. Standard income verification and credit checks will apply.

Legal considerations: You may need a solicitor to ensure all legal aspects of the concessionary purchase are addressed, including any potential implications for taxes.

Lender’s criteria: Different lenders may have specific policies and products for concessionary purchases, so it’s worth speaking to multiple lenders or using a mortgage broker familiar with these types of transactions.

What documentation is typically required when applying for a concessionary purchase mortgage?

Applying for a concessionary purchase mortgage typically involves providing both the standard documentation required for any mortgage application, as well as some specific documents related to the concessionary purchase itself. Here’s a general overview of what you might need:

Standard mortgage documentation

Proof of Identity and Legal Residency: Passport, driving license, or other government-issued identification.

Proof of Income: Recent payslips, tax returns, or accounts if self-employed.
Credit History: The lender will usually conduct this check, but they may require additional information.

Proof of deposit (if required): Bank statements showing the funds available for a deposit.

Concessionary purchase specific documentation

Evidence of relationship: Proof of the relationship between buyer and seller if the concessionary purchase is between family members.

Sale agreement: A written agreement outlining the terms of the concessionary purchase, including the purchase price and the value of the concession.

Property valuation: A professional valuation may be required to confirm the market value of the property.

Gift letter (if applicable): If the concession is being treated as a gift, a formal letter from the seller stating that the money does not need to be repaid might be required.

Solicitor’s details: Information for the legal representative handling the transaction.

Other relevant legal documents: This could include documents related to the property’s title, planning permissions, or other legal matters specific to the concessionary purchase.

Keep in mind that this is a general overview, and the exact requirements can vary widely between lenders and jurisdictions. It’s often advisable to work with a mortgage broker or lender who has experience with concessionary purchases, as they can guide you through the specific documentation required for your situation.

What are the typical deposit requirements for a concessionary purchase mortgage?

The deposit requirements for a concessionary purchase mortgage can vary depending on the lender, the nature of the concessionary purchase, and the specifics of the mortgage product being offered.

In some cases, lenders may offer concessionary purchase mortgages with a reduced deposit or even no deposit at all. This could occur if the concession from the seller is substantial enough to cover what would typically be required as a deposit. For example, if a property is being sold at 75% of its market value, some lenders might view the 25% concession as the equivalent of a deposit.

In other situations, a lender may still require a standard deposit, which could range from 5% to 20% of the purchase price, depending on the lender’s criteria and the buyer’s financial situation.

It’s worth noting that the deposit requirements may also be influenced by other factors, such as the buyer’s credit rating, the property’s valuation, and the specific terms of the concessionary purchase agreement.

Who offers concessionary purchase mortgages?

Concessionary purchase mortgages can be a bit more specialised than standard mortgages, so not all lenders may offer them. However, you can often find these mortgages through:

High street banks: Some major banks in the UK may offer concessionary purchase mortgages as part of their range of products, especially if they have a division specialised in family mortgages or other non-standard mortgage products.

Building societies: As they are often more community-focused, some building societies may have concessionary purchase mortgages or be more flexible in their lending criteria for such arrangements.

Specialist lenders: There are lenders that specialise in non-standard mortgage products, including concessionary purchase mortgages. They might have more experience and tailored products for these types of transactions.

Mortgage brokers: An experienced mortgage broker can be a valuable resource in finding a concessionary purchase mortgage. Brokers have access to various lenders and products and can help you find a lender that meets your specific needs.

Local and smaller banks: Sometimes, smaller or local banks may be more flexible in accommodating concessionary purchase mortgages as they might have a better understanding of local market conditions.

The availability of concessionary purchase mortgages can vary significantly depending on the jurisdiction, current market conditions, and individual lender policies. It can be beneficial to consult with a mortgage broker or financial advisor familiar with this type of mortgage in your area to get accurate information on lenders that may be suitable for your specific situation.

Concessionary mortgage rates

Concessionary mortgage rates refer to the interest rates applied to a concessionary purchase mortgage. These rates can vary widely depending on several factors, including the lender, the nature of the concessionary purchase, the loan-to-value ratio (LTV), the borrower’s creditworthiness, and the overall market conditions at the time of the mortgage application.

Since concessionary purchase mortgages are somewhat specialised, the rates might not be readily advertised like standard mortgage products. Therefore, it’s common to engage with a lender directly or work with a mortgage broker to determine the specific rates available for a concessionary purchase mortgage.

It’s possible that some lenders may offer more favourable rates for concessionary purchase mortgages, especially if there is a significant family relationship involved in the transaction and the risk profile is considered low. Conversely, others might charge a higher rate due to the non-standard nature of the transaction.

Buying a house from a family member at a discount

Buying a house from a family member at a discount, also known as a concessionary purchase, is a common arrangement where the property is sold below its market value. This can be done as a gesture of goodwill, to provide financial assistance, or for various other personal reasons.

The process involves several key steps and considerations:

Agree on terms: Both parties should agree on the discounted price and any other terms of the sale. This may require a professional valuation to determine the property’s market value.
Seek Professional Advice: It’s advisable to consult with a solicitor or conveyancer to ensure that the transaction is carried out legally and a financial advisor to understand any potential tax implications.

Mortgage considerations: If you need a mortgage to finance the purchase, you’ll need to find a lender offering concessionary purchase mortgages. The lender may require specific documentation, and the deposit requirements might differ from standard mortgages.

Contracts and conveyancing: As with any property purchase, legal contracts must be drawn up, and the conveyancing process must be followed. This ensures that the property’s title is transferred correctly.

Tax implications: There might be tax implications, such as stamp duty or inheritance tax, depending on the nature of the transaction and the jurisdiction. A tax professional can help you understand and navigate these issues.

Potential impact on benefits: If the family member selling the property at a discount is receiving certain benefits, such as pension or social care assistance, the transaction may affect their eligibility.

Emotional considerations: Buying a property from a family member can have emotional implications, and clear communication is essential to ensure that everyone’s expectations are aligned.

Buying a house from a family member at a discount can provide opportunities but also presents unique challenges and complexities. Seeking professional advice from solicitors, financial advisors, or mortgage brokers experienced in concessionary purchases can help ensure that the transaction goes smoothly and that all legal, financial, and personal aspects are appropriately handled.

What types of properties are eligible for a concessionary purchase mortgage?

Concessionary purchase mortgages are typically designed for residential properties, as they often involve transactions between family members or close acquaintances. However, the eligibility of a property for a concessionary purchase mortgage can vary based on several factors:

Residential properties: Most commonly, concessionary purchase mortgages are used for houses, flats, or apartments that will serve as the primary residence of the buyer.

Buyer’s relationship to seller: The nature of the relationship between the buyer and seller can impact eligibility. Many concessionary purchases involve family members, but some lenders might also consider other close relationships.

New builds and off-plan purchases: Some lenders may allow concessionary purchase mortgages for new build properties or off-plan purchases if the discount is provided by a family member involved in the construction or development.

Investment properties: While less common, some lenders might consider concessionary purchase mortgages for investment properties, particularly if they are being sold by a family member. However, additional criteria might apply.

Location: Some lenders may have geographic restrictions on where the property is located, particularly if it falls outside their usual lending area.

Property type restrictions: Certain types of properties, such as holiday homes, mobile homes, or commercial properties, may be excluded from concessionary purchase mortgage eligibility by some lenders.

Advantages

Applying for a mortgage for a concessionary purchase offers several benefits, especially for buyers looking to purchase a property from a family member or close friend at a reduced price.

Here are some of the potential advantages:

Lower purchase price: Since the property is being sold below market value, the buyer benefits from a lower purchase price, making homeownership more accessible.

Reduced or no deposit: Depending on the lender’s criteria and the extent of the concession, the requirement for a deposit may be reduced or even eliminated.

Family assistance: Concessionary purchases often facilitate financial assistance within a family, allowing parents or other relatives to help younger or less financially established family members to buy a property.

Potential for favourable mortgage terms: Some lenders may offer favourable terms for concessionary purchase mortgages, recognising the lower risk associated with the transaction due to the reduced purchase price.

Flexibility in repayment: Family members may be more flexible with repayment terms if they are also the lender, though this would be outside the conventional mortgage market.

Potential tax efficiency: Depending on the jurisdiction and specific circumstances, there may be tax benefits associated with concessionary purchases, though professional tax advice should be sought to understand the details.

Strengthening family relationships: By assisting a family member in purchasing a home, relationships can be strengthened through mutual support and trust.

Potential speedier transaction: Transactions between family members or close friends might proceed more smoothly and quickly, as both parties are motivated to cooperate.

What are the potential pitfalls, and how can I avoid them?

A concessionary purchase mortgage can present some potential pitfalls. Being aware of these and taking appropriate precautions can help in avoiding them:

Emotional complications: Transactions between family members can become emotionally charged. Clear communication and a written agreement can help avoid misunderstandings.

Legal and tax implications: There may be legal or tax consequences related to the concession. Engaging a solicitor or tax advisor to ensure that everything is handled correctly can mitigate these risks.

Potential impact on benefits or inheritance: The concession could have implications for benefits, inheritance tax, or other family members’ inheritance. Consulting with a legal or financial professional can help you understand these aspects.

Mortgage eligibility: Not all lenders offer concessionary purchase mortgages and those that do may have specific criteria. Working with a mortgage broker can help you find a suitable lender.

Property valuation discrepancies: If there’s disagreement about the property’s value, it could affect the transaction. A professional valuation can provide an unbiased assessment.

Potential future disputes: If relationships sour in the future, the terms of the concessionary purchase could be contested. Having a clear, legally binding agreement can protect against this.

Effect on seller’s financial situation: If the seller is discounting the property significantly, it might affect their financial stability or retirement planning. Both parties should carefully consider the financial implications.

Potential over-dependence: Relying too heavily on family concessions might lead to financial over-dependence or a lack of financial responsibility on the part of the buyer.

To avoid these pitfalls, both parties should approach the transaction with clarity and openness. Engaging professionals such as solicitors, financial advisors, or mortgage brokers with experience in concessionary purchases can ensure that all aspects are handled correctly. Having clear, written agreements and seeking professional valuations can further reduce the risk of misunderstandings or disputes.

What’s the difference between concessionary purchase mortgages and shared ownership mortgages?

Concessionary purchase mortgages and shared ownership mortgages are two different approaches to home buying, and they operate under distinct principles:

Concessionary purchase mortgages:

Definition: Concessionary purchase mortgages are associated with buying a property at a reduced price, often from a family member. The seller offers a concession, such as a discount, on the market value of the property.

Ownership: The buyer owns the entire property once the transaction is complete.

Mortgage: The mortgage may be based on the discounted purchase price, and some lenders might consider the concession as part of the deposit.

Benefits: Can provide a pathway to homeownership for those with limited funds for a deposit.
Potential Drawbacks: Emotional complexity due to family involvement, potential legal or tax implications.

Ideal for: Individuals buying from family members who wish to offer financial assistance.

Shared ownership mortgages:

Definition: Shared ownership is a scheme that allows buyers to purchase a share of a property (e.g., 25%, 50%, 75%) and pay rent on the remaining share, which is usually owned by a housing association.

Ownership: The buyer owns a percentage of the property and can increase their share over time through “staircasing.”

Mortgage: The mortgage is taken on the share of the property being purchased, not the full market value.

Benefits: It provides a more affordable entry into homeownership for those who cannot afford to buy outright.

Potential drawbacks: Restrictions on property modifications, selling can be more complex, and not all lenders offer shared ownership mortgages.

Ideal for: First-time buyers or those with limited income who need a more affordable way to enter the property market.

In summary, concessionary purchase mortgages are related to buying a property at a discount, often from a family member, whereas shared ownership mortgages are part of a scheme allowing gradual ownership of a property in conjunction with a housing association. The two are tailored to different needs and financial situations and operate under different rules and structures.

Can I buy the house I rent from my landlord?

Yes, you can buy the house you rent from your landlord if both you and your landlord agree to the sale. It’s not an uncommon scenario, especially if you’ve been a long-term tenant and have shown interest in owning the property. You would need to approach your landlord to discuss the possibility of purchasing the property and negotiate the terms, including the price.

If you both agree to proceed, you would typically engage in the usual home-buying process, including securing a mortgage if needed, arranging for a property inspection, and working with solicitors to handle the legal aspects of the sale. The process might be somewhat simplified since you are already familiar with the property, but you would still need to follow the standard procedures for purchasing a home in your jurisdiction.

It’s advisable to consult with real estate professionals, such as a real estate agent or solicitor, to ensure that the transaction is conducted properly and that you are aware of all the legal and financial considerations involved in buying the property from your landlord.

Concessionary purchase mortgage scenarios

Concessionary purchase mortgage scenarios typically involve buying a property at a price below its market value, often due to a special relationship between the buyer and seller. Here are a few common scenarios where a concessionary purchase mortgage might be used:

Parent-to-child sale: A parent may sell a property to their child at a reduced price to help them get onto the property ladder. The discount given can sometimes be considered as part or all of the deposit.

Elderly relative sale: If an older family member is moving to assisted living or downsizing, they might sell their property to a younger family member at a concessionary rate.

Divorce or separation: In the context of a divorce or separation, one partner might buy out the other’s share of a property at a discounted price as part of the settlement.

Sale between siblings: One sibling might purchase a property from another at a discounted price, especially if it’s a family home with sentimental value.

Employee purchase from employer: In some cases, employers might sell a property to an employee at a concessionary rate as part of an employment package or incentive.

Charitable or social housing organisations: Some organisations offer properties at a discount to individuals who meet specific criteria, such as key workers or those with low income.

Buying from a landlord: A tenant might negotiate with their landlord to purchase the property they are renting at a discount.

Estate sales or inherited property: Family members may agree to a concessionary purchase as part of handling an estate or dividing inherited property.

These scenarios can offer benefits to both parties but also come with complexities that should be carefully managed. Legal, financial, and emotional aspects need to be considered, and it’s typically wise to involve professionals like solicitors, mortgage brokers, or financial advisors to ensure that the transaction is handled correctly and that all necessary regulations are followed.

Can you get a concessionary mortgage with a bad credit score?

Getting a concessionary mortgage with a bad credit score can be challenging but not necessarily impossible. The concession or discount on the property might make the purchase more accessible, but lenders will still assess your creditworthiness and ability to make the mortgage payments.

Your credit score is one of the key factors that lenders consider when determining whether to approve a mortgage application and at what interest rate. A bad credit score might lead to higher interest rates or even a rejection of the application.

However, the relationship between the buyer and seller in a concessionary purchase might provide some flexibility. If the concessionary purchase is within a family, for example, the family members might find alternative arrangements or work with a lender who specialises in such situations.

Will I need to pay stamp duty?

Stamp duty is typically payable on property purchases, including concessionary purchases. The amount of stamp duty you’ll need to pay depends on various factors, including the purchase price of the property, its location, and whether you own any other properties.

If the concessionary purchase results in a purchase price that falls within a stamp duty threshold where duty is payable, then stamp duty would be due on that discounted price.

However, stamp duty laws can be quite complex and are subject to change. There might be exemptions or reliefs available depending on the specific circumstances of the concessionary purchase, your status as a buyer (e.g., first-time buyer), or other factors.

What is the application process like for a concessionary purchase mortgage?

The application process for a concessionary purchase mortgage is similar to that of a standard mortgage but with some additional considerations and requirements due to the nature of the transaction. Here’s an overview of what the process might look like:

Determine eligibility: Check with lenders or a mortgage broker to understand the specific criteria and whether you qualify for a concessionary purchase mortgage. This might include the nature of the relationship with the seller, the property type, and other conditions.

Pre-approval: You may want to seek pre-approval from a lender to gauge how much you can borrow. This involves submitting financial documents, credit history, and details about the concessionary purchase.

Valuation: Many lenders will require a professional valuation to determine the market value of the property and validate the concession.

Application submission: Complete the mortgage application, including providing details about the concessionary purchase, your relationship with the seller, proof of income, credit history, and other required documentation.

Legal consideration: Engage a solicitor to handle the legal aspects of the transaction, including any special agreements between you and the seller.

Underwriting: The lender will review the application, verify the details, assess the risk, and make a decision on whether to approve the mortgage.

Offer: If approved, the lender will provide a formal mortgage offer outlining the terms, interest rate, monthly payments, and any specific conditions related to the concessionary purchase.

Conveyancing process: Proceed with the standard conveyancing process, including searches, surveys, and contract exchange.

Completion: Once all parties agree, the sale will complete, and the lender will release the funds for the purchase.

Post-completion formalities: Pay any relevant taxes, such as stamp duty, and register the change of ownership with the Land Registry.

It’s important to note that concessionary purchase mortgages might have specific requirements and complexities due to the nature of the transaction. Working with professionals experienced in concessionary purchases, such as mortgage brokers and solicitors, can help navigate these complexities and ensure that the process goes smoothly. They can also provide guidance on any special considerations, such as potential tax implications or familial agreements, that might be relevant to the transaction.

How can I find a financial advisor who specialises in concessionary purchase mortgages in my area?

Finding a financial advisor who specialises in concessionary purchase mortgages can be accomplished through several steps:

Online research: You can start by doing an internet search for financial advisors in your area who specialise in concessionary purchase mortgages. Look for advisors who mention this speciality on their website or in their online profiles.

Professional organisations: Check with professional bodies in the UK, such as the Financial Conduct Authority (FCA) or the Personal Finance Society (PFS). These organisations often have online directories of advisors and their specialities.

Personal recommendations: Ask friends, family members, or colleagues who have gone through a concessionary purchase if they can recommend a financial advisor.

Mortgage brokers: A mortgage broker might also be able to recommend a financial advisor who is experienced in concessionary purchases.

Local real estate professionals: Estate agents, conveyancers, or other local real estate professionals might be able to recommend an advisor familiar with this type of transaction.

Consultations: Consider arranging consultations with several financial advisors. This can give you a chance to discuss your needs, ask about their experience with concessionary purchases, and determine whether they would be a good fit for your situation.

Mortgage advice for concessionary mortgages

Mortgage advice for concessionary mortgages can be quite specialised, given the unique nature of these transactions. Here’s some general guidance that might apply, but it’s always best to seek personalised advice from a mortgage broker or financial advisor who is familiar with concessionary mortgages in your jurisdiction:

Understand the requirements: Concessionary mortgages often have specific requirements regarding the relationship between the buyer and seller, the property type, and other factors. Understand what these are and ensure that you meet them.

Get a professional valuation: Many lenders will require a professional valuation of the property to ascertain its market value and ensure that the concession is legitimate.

Consider the deposit requirements: The deposit requirements for a concessionary mortgage might differ from a standard mortgage, depending on the lender and the amount of the concession.

Check your credit history: As with any mortgage, your credit history will be an important factor. Know where you stand and take steps to improve your credit if necessary.

Explore various lenders: Not all lenders offer concessionary mortgages, so you may need to shop around. Working with a mortgage broker can help you find lenders that specialise in this area.

Consider the legal aspects: Engage a solicitor who is familiar with concessionary purchases to handle the legal aspects of the transaction.

Think about the tax implications: Depending on your jurisdiction, there may be specific tax considerations related to concessionary purchases. Consulting with a tax professional may be wise.

Consider family dynamics: If the concessionary purchase involves family members, consider the potential emotional and relational dynamics. Clear communication and formal agreements can help prevent misunderstandings.

Plan for the future: Consider your long-term financial goals and how the concessionary purchase fits into those. This includes thinking about interest rates, repayment terms, and other long-term financial considerations.

Seek professional advice: Given the specialised nature of concessionary mortgages, working with a financial advisor, mortgage broker, or other professionals who have experience in this area is highly advisable.

Concessionary purchases offer opportunities but also come with specific complexities. Tailored advice from professionals who understand these transactions will help ensure that you navigate the process successfully and make decisions that are in line with your financial goals and circumstances.