Mortgages for Concessionary Purchases
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What is a Concessionary Purchase?
A concessionary purchase is where a property is purchased for less than the market value, usually from a family member.
This can also be known as “below market value” or “gifted equity” and can occur between the following relationships:
Between family members.
Landlord selling to tenants.
Friends to other friends.
Property developers offering a discounted sale price.
What are Concessionary Purchase Mortgages?
A Concessionary Purchase Mortgage will be the amount you borrow to purchase the property. The value of the mortgage will be the discounted purchase price minus any personal deposit you are contributing, if applicable.
What Mortgage lenders will be available to you will be dependent on which of the above matches your circumstances.
For example, most lenders will accept concessionary purchase between family members.
Where as only some will accept Concessionary Purchases between friends.
This is where a Specialist Mortgage Broker will be able to advise you on the best way forward.
How do Concessionary Purchase Mortgages work?
As you’ll already know you almost always need some sort of deposit to purchase a property.
Usually your deposit will be in a savings account, most commonly your own or a parents.
Concessionary Purchases are different. Instead, someone such as a Family Member will sell their property to you at a discount to the properties market value.
The discount would be your deposit.
The most common example would be a child buying a property from their mum or dad:
£200,000 Property Value – according to the Mortgage Lender
£30,000 Gifted Equity Parents want to give (deposit)
£170,000 Mortgage Son/Daughter will need
85% Loan to Value
The mortgage provider would use the whole gifted equity as the deposit. Meaning the son/daughter doesn’t have to put any of their own money toward the deposit. And the mortgage lender will offer products based on 85% loan to value.
Bear in mind the Mortgage Lender will need to complete their own Valuation on the property and that figure will be what your Mortgage is based on.
Some lenders will require a minimum deposit of 5% from the buyers own resources.
The credit profile of the applicant will play a pivotal role in how much deposit (if any) would need to be added. And like with most Mortgages there are specialist Lenders that will offer Adverse Credit Concessionary Purchase Mortgages.
When purchasing from your landlord most lenders will need a minimum of 5% from your own funds and a minimum 5% reduction from the landlord.
However there are a couple of lenders who will use the full discount as the deposit.
This would be dependent on your credit profile and a number of other factors such as income type, property type, property construction etc. As is the case with most purchases.
Concessionary Mortgage Rates
The good news is, Lenders don’t have Mortgage products just for those who are looking to complete a Concessionary Purchase.
Meaning you will be eligible for exactly the same rates that you would have been on an ordinary property purchase.
What rate you will be eligible for will mainly be dependent on the following, as it would be with any purchase:
The loan to value of the property. Which is the Mortgage you are taking out as a percentage of the property purchase price. What this will be, will be dependent on the amount of discount you are getting and the amount of personal deposit you are putting down, if applicable.
Your Credit History. Generally the cleaner your Credit History (no missed payments etc), the cheaper your Mortgage will be.
Concessionary Purchase where the giftor will remain
This is one question that comes up on a regular basis. The simple answer is, yes, it is possible but more difficult.
The reason for the added difficulty is due to the fact that there are only a handful of lenders who will allow this scenario. So again your personal circumstances will be down to whether this is possible.
The main determining factor for this would be credit profile, as the lenders who will allow this type of transaction tend to be clean credit lenders.
The majority of lenders will require the parents/grand parents etc to move out of the property upon completion of the sale and confirm to the Lender and Solicitor that this is their intention.
Bad Credit Concessionary Purchase Mortgage
Landlords Selling their property to Tenants
Some tenants have been in the same property for a number of years and grow very attached to the property.
Landlords also might feel they want to help their loyal tenants out or simply get a quick sale.
Since tax regulation changed some landlords are selling properties and generally offer the tenants first refusal.
The relationship and the amount of time in the property where the tenant has been paying rent consistently also makes selling to the tenant an ideal solution when the Landlord wants to sell.
In addition to the above, by selling to tenants Landlords save time and money as they won’t have to market the property and pay estate agent fees.
There are a number of factors that must be considered:
Each lender has a maximum and minimum discount accepted.
Majority of lenders will require 5% deposit from client’s own funds.
There are however some lenders who don’t require any deposit.
Tenants must have lived in the property over 12 months.
Costs involved with Concessionary Purchases
For the buyer, the costs involved with Concessionary purchases will be relatively the same as they would be for ordinary buyers.
You may have to consider stamp duty, broker fees, solicitor fees and any fees associated with the Mortgage Product you take out, such as Arrangement or Property Valuation fees.
What alternative Mortgages will be available?
The main alternative Mortgage types are:
Fixed Rate Mortgage: The main alternatives would be a 2 or 5 year fixed rate Mortgage. They will no doubt be cheaper then the whole term fixed rate Mortgage, but with less borrowing power.
Variable Rate Mortgages: Where your interest rate can vary. You will usually have a set interest rate which can fluctuate throughout the term.
The interest rate will usually change in line with the Bank of England base rate, although it doesn’t have to.
Tracker Mortgages: Where your interest rate will track a certain index, usually the Bank of England Base rate.
When the Base rate changes, so will your Mortgage rate.
What documentation will I need to provide the Mortgage Lenders?
What documentation is required for the Mortgage, will vary between Lenders.
Mortgage Lenders will usually need to verify your identity, as well as your income and outgoings.
To do this they will require the following:
Payslips for Employed Applicants or Accounts/Tax Calculations and corresponding Tax Year Overviews for any Self Employed Earnings.
Up to 3 Months Bank Statements to evidence Deposit, Earnings and Outgoings.
Identification to prove your Name and Address.
What costs will I need to consider?
Lenders Arrangement/Product fees: A fee the lender will charge for arranging your Mortgage.
This will be anywhere from £0-£1,995, depending on the product.
Broker fees: this will depend on how complex your case is. For example, whether you have any adverse credit.
To find out exactly what it could cost, get in touch with on of our Mortgage Brokers for a free non-obligatory quotation.
Solicitors fees: for an ordinary house purchase, you can expect to pay anywhere between £1,000 and £2,000, so its important to shop around.
Always check out their Reviews before choosing a Solicitor. They’re a very important cog in the house buying process.
Stamp Duty: If you are a first time buyer in England, it is unlikely you will pay stamp duty if your property is valued less than £500,000.
For non first time buyers, Stamp duty will be due on properties worth over £125,000.
Mortgage Valuation: The Mortgage Lender may charge a fee to complete a basic valuation on your property during the application process.
This will be between 0-£400. But could be more if you need to use a specialist lender, if you have adverse credit for example.
Survey fees: You may choose to carry out a more thorough assessment on your property.
The most common, being a Homebuyers report, which will cost between £300-£500.
Full Structural report, if needed, will cost in excess of £600, however these are rarely necessary.
Our Mortgage Brokers
We work with a variety of Mortgage Brokers which each specialise in different Mortgage Advice areas.
When you get in touch, simply select the reason why you’re getting in touch i.e. First time buyer, Bad Credit, Remortgage etc. And we will match you to the Mortgage Broker which Specialises in your circumstances.
All of the Mortgage Brokers we work with are whole of market, FCA regulated, CeMap qualified and have consistently great reviews.
Get in touch for a free non-obligatory conversation with one of our Specialist Mortgage Advisors for further information on how they can help you.
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