At AALTO Mortgages, we understand that owning a home is a dream that many aspire to achieve. However, the rising property prices and the need for a substantial deposit can often make it seem out of reach. That’s where concessionary purchase mortgages come in. In this comprehensive guide, we will provide you with all the information you need to navigate the world of concessionary purchases, secure the right mortgage, and take your first step onto the property ladder.
What is a Concessionary Purchase?
A concessionary purchase, also known as a below market value (BMV) purchase or a gifted equity deposit purchase, involves buying a property at a price below its market value. Typically, this discount is provided as a gift by someone, which can be viewed as a deposit. To fund the remaining amount of the property, you will need a concessionary purchase mortgage.
How do Concessionary Purchase Mortgages Work?
Concessionary purchase mortgages function similarly to standard mortgages, with one key advantage – the deposit is covered by the equity provided through the discount. While the lender calculates the loan-to-value (LTV) ratio based on the market value of the property, they offer you a mortgage that covers the full price you are paying. In some cases, you may not even need to put down additional cash upfront, although there are exceptions to this.
It’s crucial to note that the discount offered must be a genuine gift, not a loan or a share in the property. Additionally, once the sale is complete, the seller should not retain any financial interest in the property. Lenders also impose overall LTV restrictions to ensure the mortgage aligns with their maximum lending limits.
While concessionary purchase mortgages offer an opportunity for affordable homeownership, navigating this sector can be challenging. It often requires the expertise of a broker experienced in concessionary mortgages. Seeking support from experts beforehand can provide you with the necessary knowledge and guidance to make informed decisions.
Worked Example
Sarah’s parents are looking to move into a smaller house, and Sarah wants to retain the family home. The family home has been valued at around £200,000 by various estate agents, however Sarah’s parents do not have a mortgage on the home and are happy to accept just £150,000 for the property.
Typically, you would get a mortgage for a percentage of the purchase price, requiring you to invest cash yourself. With a concessionary purchase you use the equity in the property as a gift. Because it’s a family member or close relative this is usually acceptable to lenders. They will instead take the market value as the purchase price as if Sarah was buying for £200,000, but accept her gifted equity as deposit, meaning that she only needs get a £150,000 mortgage at 75% LTV giving her significantly better rates that had she bought elsewhere.
The added bonus is that because it’s a family transaction timing and completion dates are much simpler and the family get to retain a family home full of sentimental value.
How to Get a Concessionary Purchase Mortgage
To obtain a concessionary purchase mortgage, you need to follow a few recommended steps. These include:
Step 1: Speak to a Broker Experienced in Concessionary Purchases
Due to the complexity of concessionary purchases, it is essential to consult with a broker who specializes in this area. They possess the knowledge and expertise to guide you through the process, ensuring that you can prove to lenders that the discount is a genuine gift. Moreover, they are familiar with lenders who are accommodating in these circumstances.
At AALTO Mortgages, we work with experienced brokers who understand concessionary mortgages. By making an enquiry, we can introduce you to a broker who can assist you in this specific area of mortgage lending, increasing your chances of success.
Step 2: Gather the Required Evidence
During the application process, you may need to provide additional evidence to prove the authenticity of the discount. Your broker will advise you on the specific documents required, such as gift letters or legal reports.
Step 3: Explore Lenders’ Policies and Options
Various UK lenders operate in the concessionary mortgage space, each with their own requirements and limitations. Most lenders prefer concessionary purchases to be through a family member or landlord, while others impose specific LTV limits and may request additional deposits. It’s important to work closely with your broker to identify lenders who are open to your specific situation and tailor their offerings accordingly.
For example, Barclays accepts concessionary purchases through an existing relationship, such as parent and child. They may also consider landlord discounts, albeit with a minimum deposit requirement. NatWest is potentially open to concessionary purchases via a family member, subject to a clear connection and appropriate documentation. Halifax, on the other hand, accepts family or landlord
