Buying from mum or dad under market value? – Concessionary purchase.

amnteam — Sat, 18 Apr 2015 13:27:14 +0000

If you are buying a property from your mother or father under market value, lenders know this is a concessionary purchase.

If you are contributing a deposit from your own funds in the usual way, then this wouldn’t be a concessionary purchase.

This type of purchase is a different scenario from the gifted deposit purchase because no deposit funds need actually change hands.

Key facts:

You can buy a property from a relative without putting in a deposit
Mortgage rates are no higher than for a standard purchase
The difference between the property value and the purchase price is your ‘deposit’

How concessionary purchase works

Your parent has a property which is valued at £250,000. You would like to buy the property from them and have the affordability to do so but do not have deposit funds.

Your parent agrees to sell to you under market value at £187,500, with the difference in the sale price and the market value acting as the deposit – this is a concessionary purchase.

The biggest complication in this type of purchase is that the person(s) selling the property are prohibited from continuing to stay in the property by the majority (but not all) mortgage lenders – more detail below.

What does this mean for your concessionary purchase mortgage?

The lender considers the loan-to-value of the mortgage as the difference between the agreed price and the market value. Therefore, if the agreed price is £250,000 and the value £187,500 you can obtain a 75% loan-to-value mortgage.

Cost example:

Property value £250,000
Purchase price £187,500
Cash Deposit required £0
Mortgage Required £187,500
Payments £799 pm*

*Based on a 1.99% mortgage rate and a 25-year mortgage term

Concessionary purchase complications

Only selected mortgage lenders accept concessionary purchases.

Some lenders will accept them but require the purchaser to put in a minimum five or 10% deposit from their own funds (not gifted by the parent).

Concessionary mortgage for purchase where parents stay in the property

Nearly all lenders that accept concessionary purchases expect the vendor to move out on completion (vacant possession). Therefore, if you intend to buy Mum’s home and then have her continue to live with you, then you will have limited lending options.

There are further complications in that where lenders do allow the parents to remain in the property, some lenders will not, for example, allow an annexe to be built to house the parent.

To get your mortgage right on a concessionary purchase you need an experienced mortgage broker.

Who can sell in a concessionary purchase?

The majority of mortgage lenders operating in the concessionary purchase market will only allow purchases from:

Parents
Brothers
Sisters
Grandparents

A few will allow a purchase from:

Uncles
Aunts
Step Parents
Cousins

Can I buy from my landlord?

Purchase from your landlord at below market value is a different type of concessionary purchase for which we know of only one lender to be suitable. If you have been a tenant in the property for at least one year then you can make such a purchase where the difference between market value and purchase price acts as a deposit, provided you select the right mortgage lender.

Do I have to live in my concessionary purchase?

No, you can buy a concessionary purchase to let as there are a small number of mortgage lenders that will allow this.

If you want to make a concessionary purchase

Make sure that you engage an experienced independent mortgage advisor. This is an extremely tricky area for lending, misunderstood by many people in the market. If you get a concessionary purchase wrong it can fall apart at the last minute causing tensions within the family and unnecessary stress and financial loss.

Call us now on 020 8979 9684

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