What is a concessionary purchase mortgage, and can it help you buy a home? 

Millions of Brits dream of owning their own home, but a huge barrier to reaching that goal is building a deposit. 

One way to help you get on the housing ladder is to use a concessionary purchase mortgage, which usually doesn’t require you to have a traditional deposit. 

We explore what a concessionary purchase mortgage is, how it works, and the pros and cons.

What is a concessionary purchase mortgage? 

A concessionary purchase mortgage, also known as a gifted equity deposit mortgage or below market value (BMV) purchase mortgage, can allow you to buy a home at a discounted price, usually without a deposit. 

This is because you’re buying a property at a below-market price, and the difference between the market price and your purchase price can be used instead of a deposit.

For example, instead of putting down a 10% deposit on a £330,000 property, you could buy it from a family member for £300,000 and the £30,000 of extra value in the property could be used as the deposit.

However, some mortgage lenders may ask that you offer your own deposit as well or that the seller offer a minimum level of discount.

In this scenario, you can boost the difference between the value of the property and its price with your own funds.

In many cases, a gifted discount on a property purchase will come from a family member.

However, other people may also be able to offer you such a discount, including friends or even your landlord – if the mortgage lender will allow this. 

Why might someone sell you a property at a discount? If it is a relative they may want to help you without giving you cash.

Alternatively, your landlord do this as it typically means a quicker and cheaper sale than on the open market.

It also means they don’t lose out on rent as you keep paying rent until you officially own the property.    

How does a concessionary purchase mortgage work? 

First, you need someone willing to offer you a discount on the property they plan to sell.  

It’s important to stress they must give you equity by offering a discounted price below market value. If it’s not a gift, you can’t get a concessionary purchase mortgage. 

For example, if your parents want to sell you their £250,000 home for £200,000, you get a £50,000 discount. You can then ask a mortgage lender to accept the £50,000 as part of, or your whole deposit. 

While you can buy a property to live in, you can also purchase one for buy-to-let using a concessionary discount mortgage.

Who can offer a discount and help me get a concessionary purchase mortgage? 

You may be able to get a concessionary purchase mortgage by buying from: 

• A family member 

• A close friend 

• Your landlord 

• A developer 

• An open-market seller 

• Your employer 

However, mortgage lenders may be concerned if a developer is offering a discount in case of any issues that have led to the discount, while a discount from an open-market seller may be seen as riskier.

What types of concessionary purchase mortgages are available?  

There are several different types of concessionary purchase mortgages available, including: 

• Family concessionary purchase mortgage 

• Landlord concessionary purchase mortgage 

• Developer concessionary purchase mortgage 

• Employer concessionary purchase mortgage 

These mostly work by allowing you to buy a property from the specified party, although the employed-focused mortgage can work differently. 

With the employer concessionary purchase mortgage, employees may be able to buy a property at a discount or with better terms, as part of their benefits package.  

Developer concessionary purchase mortgages can have some caveats, such as a limited time for discounts or for certain properties in a development.  

When looking for a mortgage, it’s always wise to talk to a qualified mortgage broker who can review your options and the right course of action based on your circumstances. 

What’s the eligibility for a concessionary purchase mortgage? 

Eligibility for a concessionary purchase mortgage can vary as it depends on: 

• The discount you’re offered and deposit 

• The condition of the property you plan to buy.

• Your income and spending 

• Your income and spending 

• Your planned mortgage term 

The last two are particularly important as the mortgage lender wants to ensure you can afford the monthly mortgage payments. 

As with any other mortgage, you should ensure your credit score is good and your credit report is error-free. 

While a bad credit history can lead to less favourable terms or rejection, it ultimately depends on the lender. A mortgage broker can help you find lenders who are more likely to approve your application.  

You should also consider an agreement in principle, where a mortgage lender confirms they would be happy to lend to you and how much you could, in principle, borrow before you put an offer in.  

How much can I borrow with a concessionary purchase mortgage? 

Typically, mortgage lenders will let you borrow between four and five times your annual salary. 

However, the amount you can borrow will vary depending on your unique circumstances, including your salary, credit score, and deposit. 

Do you have to pay stamp duty with a concessionary purchase mortgage? 

You may have to pay stamp duty, depending on the value of your property and if you’re a first-time buyer.  

Usually, you’ll pay a higher rate of stamp duty for more expensive properties. 

If you’re a first-time buyer, you currently pay no stamp duty on properties worth up to £300,000, while you have to pay more stamp duty if you own more than one property. 

Who offers a concessionary purchase mortgage? 

It may be harder to find a concessionary purchase mortgage than a traditional one, but some mainstream lenders, such as Aldermore, TSB and Nationwide, offer this type of mortgage. 

These may not be branded as specific ‘concessionary purchase mortgages’.

Most tend to be standard products with a clause allowing you to use a gifted deposit instead of cash, so are not specifically advertised for this purpose.

A mortgage broker can help you find a concessionary purchase mortgage and help you with your application so it has the best chance of success.

Unbiased can quickly match you with a qualified mortgage broker. 

When considering you for a concessionary purchase mortgage, the lender will look at the value of the property you plan to buy.

It may require extra checks before approving your application, or ask you to prove you’ve lived in a rental property if your landlord offers a discount.  

Are there any alternatives to a concessionary purchase mortgage? 

If your family is keen to help you buy your own home, they could give you a deposit instead of dropping the purchase price of an existing property.

However, this won’t affect the price of the property you’re planning to purchase. 

This option could be useful if you are struggling to save a large enough deposit.

Note that, to comply with anti-money laundering rules, the lender may ask for bank statements from your family member to prove where the gifted money came from and ask for a signed declaration it is a gift, not a loan.

You could also opt for a guarantor mortgage, where a family member with a property or savings uses these assets as a guarantee that you’ll pay back your loan.

There are also specific mortgages targeted at first-time buyers that only require a small deposit, for example 5% of the purchase price.

What are the pros and cons of using a concessionary purchase mortgage? 

Similar to a traditional mortgage, there are many advantages and disadvantages to consider. 

The pros of a concessionary purchase mortgage: 

• You can buy a property at below market value: This means you could buy your home for a cheaper price compared to the open market.

   

• You may not need a deposit: If the mortgage lender accepts the discount as a deposit, you may not need one – or you might only need a smaller one.

• You may be able to access more competitive mortgages: If you get a substantial discount the property’s loan-to-value will be lower, allowing you to access better deals and therefore lower monthly payments.

• Landlords can save money and speed up the sales process: If a landlord wants to sell, they could save time and money by selling to their tenants instead of selling on the open market.

• The property stays with the family: Not only can family members help their relatives get on the housing ladder, but they can also ensure their home stays within the family.

The cons of a concessionary purchase mortgage: 

• You may not save on stamp duty: If you’re offered a discount on a property, you should technically pay less stamp duty. However, as many mortgage lenders view the discount as a gift, you may need to pay stamp duty on the original market price.

• Sellers may pay capital gains tax (CGT): If the property you plan to buy has been a second home or buy-to-let, the seller may have to pay CGT on the full market value, rather than the discounted price.

• Inheritance tax may be due: Inheritance tax may need to be paid by the seller’s estate if they die within seven years of the transaction.

Need help buying your home? 

Unbiased can quickly match you with a qualified mortgage broker who can help you find the right mortgage for your unique circumstances and boost your chances of a successful application.