Unlock Opportunities With Concessionary Purchase Mortgages
A concessionary purchase mortgage, also known as a below-market-value (BMV) purchase mortgage, is a unique opportunity that allows you to buy a property for less than its market value because someone, often a family member, has generously gifted you the difference.
This type of mortgage is tailored to facilitate such transactions, making it possible for you to become a homeowner without needing a substantial cash deposit. It's a fantastic option for those looking to overcome the hurdle of saving up for a traditional deposit.
Understanding Concessionary Mortgage Purchases
In a concessionary mortgage purchase, the process unfolds as follows:
- A Generous Offer: Someone, often a family member or landlord, wishes to extend a generous offer to you. This may involve selling a property at a discounted price, providing you with a valuable opportunity.
- Gifted Equity: The benefactor gives you a gift of equity, representing the difference between the property's market value and the reduced purchase price. This gift must be a true gift and not a loan or ownership share.
- Deposit Boost: You can utilise this gifted equity as part or all of your deposit when obtaining a mortgage. It effectively enhances your down payment, bridging the gap between the property's market value (which you can estimate using platforms like Zoopla or Rightmove) and the offered purchase price.
Let's illustrate this with an example:
- Market Value: £500,000
- Offered Price by Parents: £3500,000
- Discount: £150,000
- Some lenders may consider this £150,000 discount as your mortgage deposit.
This allows you to become a homeowner without needing a substantial cash deposit upfront, making the process more accessible. You can use a property acquired through a concessionary purchase for various purposes, including:
- Your Home: You can make it your primary residence.
- Buy-to-Let Property: Alternatively, you can rent it to others, turning it into an investment property.
Concessionary Mortgage Purchase Scenarios
A concessionary purchase mortgage can be a suitable option in various scenarios, especially when you're buying property from:
- A Family Member: This scenario is often called a Family Concessionary Purchase or A Transaction Under Value. It's when your immediate family members, like your parents, want to assist you in buying a property. Beyond the financial benefit of the discount, such transactions typically come with fewer complications and potential surprises. If it's the home you grew up in, its sentimental value can outweigh its monetary worth.
- Your Current Landlord: A concessionary purchase mortgage can be advantageous if your landlord intends to sell and offers you the property at a discounted rate. You get to avoid the hassle of moving while benefiting from the reduced price.
- Your Employer: Though less common, some employers may offer employees a concessionary purchase option. However, it's essential to ensure all terms are documented as a gift rather than a loan to prevent ownership disputes in the future.
- A Developer: In some cases, developers may provide a developer's discount on a property, making it available at a below-market rate. Securing a mortgage for such a purchase can be challenging, as lenders may question the developer's motive behind the discount. They may be concerned about potential undisclosed issues with the property.
- An Open Market Seller: Occasionally, sellers on the open market might offer a discount on a property. While this is appealing, getting a mortgage for such a purchase may be more difficult, as lenders view it as a higher risk. If there are structural issues or other concerns, they may require additional safeguards, such as a larger deposit.
It's important to note that even though a concessionary purchase may seem like a great deal initially, it's crucial to consider potential long-term implications. To make an informed decision, it's highly advisable to conduct a thorough home survey to uncover any hidden issues or risks associated with the property.
Ways To Qualify For A Concessionary Purchase Mortgage
To qualify for a concessionary purchase mortgage, similar factors come into play as with any mortgage application. These include:
- Size of Your Deposit: In the context of a concessionary purchase mortgage, your deposit comprises the equity in the form of the discount you received and any additional down payment you can contribute.
- Income: Lenders assess your income to ensure you have the financial capacity to meet your mortgage repayments.
- Mortgage Length: The typical mortgage term in the UK is 25 years. If you intend to pay off your mortgage sooner than that, lenders will want to ascertain that you can comfortably afford the accelerated repayment schedule.
- Property Condition: The state of the property can impact your eligibility. If lenders perceive the property as too risky to finance, it may affect your qualification. This consideration is particularly relevant if you've received a discount from a developer, as lenders will seek to understand why the developer is eager to sell.
If you meet these criteria, consult a mortgage broker like Property Link Homes. We specialise in helping you find the most suitable lender based on your specific circumstances and needs. A broker can navigate the complexities of the mortgage market and guide you through the application process.
Can Having A Bad Score Prevent You From Getting A Concessionary Mortgage?
A bad credit score doesn't necessarily disqualify you from obtaining a concessionary mortgage. Many lenders consider your credit score as just one of several factors in their decision-making process.
It's important to note that there's often more to your financial story than just your credit score, and not all credit issues are viewed equally.
For instance, a history of bankruptcy is viewed differently from occasional late payments on a credit card. Lenders take various factors into account when assessing your eligibility.
If you have a less-than-ideal credit score, it's still worth exploring your options. Different lenders have different criteria and risk appetites, so a rejection from one lender doesn't necessarily mean all turn you down.
In summary, while a bad credit score can pose challenges, it doesn't necessarily mean that obtaining a concessionary purchase mortgage is impossible. Keep your options open and seek advice from mortgage professionals who can help you find suitable lenders based on your circumstances.
Where Do I Obtain A Concessionary Purchase Mortgage?
Securing a concessionary purchase mortgage can be challenging since not all lenders offer them. The process, however, is similar to searching for other types of mortgages.
A mortgage broker, such as Property Link Homes, can be a valuable ally in finding the right lender for your needs.
Here's a step-by-step guide to help you navigate this journey.
CAUTION: Lenders offering concessionary purchase mortgages may closely scrutinise the property's value. They'll likely want to understand why someone is gifting you a significant discount. Even family concession purchases may require some due diligence.
Here are some steps they may take:
- Residency Proof: If you're seeking a landlord concessionary mortgage, they may ask you to prove that you've lived in a rental property for a specific duration. This helps establish the legitimacy of the landlord-tenant relationship.
- Additional Surveys: If you're buying from a developer, they may require extra property surveys to ensure everything is above board.
If all checks out, here's what they might offer you:
- 100% Mortgage: Some lenders consider the difference between the market value and your purchase price your full deposit. In this ideal scenario, you won't need to contribute additional cash to the equation. To qualify for this, your offer value must usually meet their minimum deposit requirements, typically around 90% of the market value.
- Supplemented Deposit: In other cases, you may need to add at least 5% of the total deposit amount from your own funds. Certain lenders may require this, especially for transactions outside of family concessions.
Finding The Right Lender
The key to securing a concessionary purchase mortgage is finding a lender willing to offer one. Work with a mortgage broker who can help you identify suitable lenders based on your specific circumstances.
Things To Tak Ein To Account When Considering A Concessionary Purchase Mortgage
The limits associated with a concessionary purchase mortgage can vary between lenders, but there are some common elements to consider:
- It Must Be a Gift: It's crucial that the equity given to you by the seller is a genuine gift and is clearly outlined in all legal documents. This helps prevent potential disputes in the future.
- Stamp Duty: In the UK, when you buy a property, you may have to pay stamp duty, a tax required for legally recording the transaction. First-time buyers are exempt from stamp duty on properties valued up to £300,000. However, if you're not a first-time buyer, you might need to pay stamp duty based on the open market value of the property rather than the discounted purchase price.
- Seller's Capital Gains Tax (CGT): The seller might have to pay capital gains tax (CGT). The calculation of CGT may also be based on the market value of the property rather than the discounted price.
- Occupancy Restrictions: Depending on the terms of the sale, you might not be able to allow certain individuals, such as your parents, to live in the house after the sale.
- Buy-to-Let Mortgage Restrictions: If you're purchasing the property from your current landlord, you may face challenges obtaining a buy-to-let mortgage.
- Lenders may be cautious about approving a mortgage for a property they sold to you if you intend to have different tenants.
Remember that these limits can vary depending on the lender and the specific terms of the concessionary purchase agreement. It's essential to thoroughly understand all the terms and conditions before proceeding with this type of mortgage.
Ready to explore concessionary purchase mortgages and make the most of this opportunity? Contact us at Property Link Homes today, and let our experts guide you through the process. Your dream home may be more attainable than you think.
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