Concessionary Mortgages

For many, the biggest hurdle to buying a home is saving for that hefty deposit. But if you’re offered the chance to buy a property below its market value, whether as a gift from your family, employer or landlord, a concessionary purchase mortgage can help make this happen, and you can use the discount as your deposit. 

What Is a Concessionary Mortgage?

A concessionary mortgage, also known as a Concessionary Purchase Mortgage or a "gifted equity" mortgage, is a home loan for a property being sold at a price below its market value. The difference between the discounted purchase price and the actual market value is treated as a gifted deposit or equity.

This arrangement is most common in private sales, typically between family members. It's a great opportunity for first-time buyers struggling to save a deposit, as a family member can help them get on the property ladder without giving them a cash lump sum. 

Concessionary purchases can also occur when a landlord sells to longstanding tenants or an employer chooses to help a loyal employee. The person selling the property essentially "gifts" the discount to the buyer, which is then used as part or all of the deposit needed for the mortgage.

How Does a Concessionary Mortgage Work?

With this type of mortgage, there are two prices in play: the market value (what an independent valuation says the home is worth) and the purchase price (what’s been agreed between the buyer and the seller). 

The difference between them is the gifted equity. Lenders can treat that discount like a deposit as long as it’s a non-repayable gift and the property's market value is sufficiently higher than the purchase price.

Here’s a classic example:

• Your parents own a property with a market value of £250,000.

• They agree to sell it to you for £200,000.

• The £50,000 discount is your gifted equity.

• The mortgage lender treats this £50,000 as a deposit (20%).

• You take out a mortgage for the price you're paying - £200,000.

In the lender’s eyes, your mortgage is for 80% of the property’s true value, rather than 100% of the purchase price, which in turn will give you a better opportunity to access more competitive interest rates without having to personally contribute any of your own money as a deposit. 

How Much Can You Borrow for a Concessionary Mortgage?

The amount you can borrow is still assessed in the same way as it is for standard residential mortgages, where the lender will initially use a multiple of your annual income. The typical range is between four and five times your salary. Based on the example used above, to get a £200,000 mortgage, you’d need a salary of roughly £40,000 to £50,000 per year.

Keep in mind that if you're buying with a partner, lenders will assess your combined earnings for a joint mortgage, which can significantly increase your borrowing power.

To see how this might work out for you, based on your annual income, take a look at our quick and easy-to-use affordability calculator. 

You can also use our mortgage repayment calculator below to see what the amount you're looking to borrow could cost you each month and check if this fits with your budget.

Remember, this is just a guideline at this stage. Lenders will assess your overall financial situation, including your debts, expenses, and credit history, before reaching a final decision on how much you can borrow for your mortgage.

Who Can Offer a Concessionary Discount?

Most lenders prefer these arrangements to be between close relatives. The most common scenarios involve a parent, grandparent, or sibling selling a property they own to a family member at a discount. In some cases, aunts, uncles, or other relatives outside your immediate family can be considered.

Other acceptable scenarios include: 

• A landlord selling to a current tenant

• Properties sold through a charitable trust

• A developer offering exclusive discounts on properties they’ve built. 

The key is that the discount must be a genuine gift, with no future repayment or conditions attached.

Concessionary Mortgages: Eligibility Criteria

Lenders have specific criteria for Concessionary Mortgages, and each case is assessed individually. The main things they’ll look at are:

• The discount: Most lenders require a minimum discount, often 5% or more, to consider it as genuine gifted equity.

• The relationship: The lender needs to understand your relationship with the seller and will require written confirmation that the discount is a gift, not a loan.

• Your financial situation: You’ll still need to pass all the usual affordability checks based on your income, outgoings, and credit history.

• The property: The property must be fit for purpose and meet the lender's criteria. The lender will also want an independent valuation to confirm the property’s true market value.

Some lenders may require a small cash deposit in addition to the gifted equity, particularly if the discount is small or your financial situation is more complex.

Are There Any Special Requirements?

In addition to the criteria outlined above, both the buyer and seller will need separate legal representation to ensure the transaction is above board and everyone's interests are protected.

Another key point is that the seller usually can't remain living in the property after the sale is complete. If you intend for the family member to continue living in the home, this could complicate the application.

Concessionary Mortgages: Pros and Cons

A Concessionary Purchase Mortgage can be a fantastic way to get on the property ladder, but it's not without its drawbacks. Here’s the good and the bad.

Why They’re a Great Idea: 

• You don't need a cash deposit, or you only need a very small one, making homeownership more accessible.

• You can benefit from a lower loan-to-value (LTV) ratio, which can mean better interest rates and lower monthly payments.

• The transaction is often quicker and simpler than a sale on the open market, as there’s no chain.

• It's a great way to keep a cherished property within the family.

What You’ll Need to Think About:

• Not all lenders offer this type of mortgage, so using a mortgage broker (like us!) is a wise move as they’ll be able to help you identify the ones that can. 

• The discount could have tax implications for the seller, such as Capital Gains Tax or Inheritance Tax. So, it’s important that the seller seeks tax advice before proceeding with the sale. 

• The arrangement can become legally complicated if the relationship with the seller breaks down.

• Lenders may impose restrictions, such as the seller not being allowed to continue living in the property.

What Are the Alternatives?

If a Concessionary Mortgage isn't right for you, or your circumstances don't fit, there are other options to help you with your deposit or affordability.

• Gifted Deposit: This is where a family member gives you a cash lump sum to use as your deposit. The property is sold at its full market value, but you get the help you need without the complexities of a discounted purchase.

• Guarantor Mortgage: A family member (usually a parent) agrees to act as a guarantor for your mortgage, using their own savings or property as security. This allows you to borrow more and get a better deal, while the loan is solely in your name.

• First Homes Scheme: If you're a first-time buyer, this government-backed scheme offers a discount of at least 30% on a new-build property. The discount stays with the home for the next buyer, keeping it affordable for local communities.

How Is Stamp Duty Paid?

The good news is that stamp duty (SDLT) is typically calculated on the purchase price you're actually paying, not the full market value. So, if you’re buying a property through a concessionary purchase, this could result in a significant tax saving.

For example, on a £250,000 property you're buying for £200,000, you would only pay stamp duty on the £200,000 purchase price, not the full £250,000 value. However, it's always worth checking with your solicitor to ensure that the correct figures are used (the purchase price rather than the market value) for this purpose. 

Why Pick Picnic for Your Concessionary Mortgage?

Concessionary mortgages are quite rare, with a limited number of lenders offering them. Finding the best terms available on your own could be a challenging and time-consuming process. Having an experienced mortgage broker on your side - like us! - makes things much easier and more efficient. 

Here’s how we can help:

• Finding you the best concessionary mortgage deals: Our mortgage team will already know which lenders are currently offering the most competitive rates for this type of home loan. They can compare the current concessionary mortgage deals available to find the one that’s right for your circumstances, including exclusive offers not generally available elsewhere. 

• Your mortgage, made simple from start to finish. Our online portal allows you to track your mortgage application step-by-step, sign and upload documents in seconds, and contact your mortgage team at any time. No back-and-forth emails. No printing. No guesswork. Everything you need, all in one place, so you can stay organised and in control of your mortgage journey. 

• Making mortgages possible, whatever the circumstances: Our team of advisors have a clear understanding of the eligibility criteria used by each lender and will identify the one that's best placed to help. Our sister brand, Haysto, has become the No.1 destination for customers who've been turned away elsewhere. For anyone with a complex income or adverse credit record - we’ve got your back!