Concessionary Purchase Mortgage UK

A concessionary purchase mortgage offers an excellent opportunity for buyers to purchase property at a discounted price, typically from family members, employers, or close connections. This arrangement can help buyers secure a home more affordably while ensuring a smoother transaction. Here’s an in-depth look at concessionary purchase mortgages in the UK, how they work, and their benefits.

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What Is a Concessionary Purchase Mortgage?

A concessionary purchase mortgage is a type of mortgage where the property is sold below market value. The seller provides a discount, which can act as the buyer’s deposit. It is most commonly used in the following situations:

• Family Sales: A family member sells their property to another relative at a reduced price.
• Employer Sales: An employer offers discounted housing as part of a benefits package.
• Close Connections: Sellers offering discounts to trusted individuals, such as long-term tenants.

The discount is treated as equity, reducing or even eliminating the need for the buyer to provide an upfront cash deposit.

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How Does a Concessionary Purchase Mortgage Work?

1. Property Valuation:
   • A professional property valuation determines the property’s market value.
   • The lender uses this valuation to calculate the loan-to-value (LTV) ratio, factoring in the discount as part of the equity.
2. Discount as Deposit:
   • The discount provided by the seller acts as a deposit. For example, if the property is worth £250,000 and sold for £200,000, the £50,000 discount acts as a 20% deposit.
3. Lender Approval:
   • Lenders verify the transaction, ensuring the discount is genuine and not a loan or gift subject to repayment.
4. Affordability Checks:
   • The buyer must meet the lender’s affordability criteria for the remaining mortgage amount.

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Eligibility for a Concessionary Purchase Mortgage

To qualify for a concessionary purchase mortgage, you typically need to meet the following criteria:

For Buyers:

• The buyer must meet the lender’s standard affordability and creditworthiness checks.
• The buyer must provide proof of the relationship with the seller (if applicable).

For Sellers:

• Sellers must confirm that the discount is genuine and not subject to repayment.
• The transaction must comply with the lender’s anti-money laundering requirements.

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Benefits of a Concessionary Purchase Mortgage

1. Reduced Deposit Requirements
   • Buyers benefit from the discount acting as a deposit, potentially eliminating the need for cash savings.
2. Lower Loan-to-Value (LTV) Ratio
   • A lower LTV ratio can lead to better interest rates and reduced monthly payments.
3. Affordability
   • Purchasing at a discounted price makes the home more affordable, helping first-time buyers or family members step onto the property ladder.
4. Simplified Transactions
   • Family or employer-led sales are often more straightforward, avoiding lengthy negotiations or competition from other buyers.

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Considerations and Potential Challenges

Lender Acceptance

Not all lenders offer concessionary purchase mortgages. It’s essential to research and identify lenders experienced with these transactions.

Future Resale Value

While the discounted purchase price is beneficial, buyers should be mindful of the property’s true market value when selling in the future.

Tax Implications

For sellers, the discount could have tax implications, such as capital gains tax. Buyers and sellers should consult tax advisors to understand potential liabilities.

Documentation

Both parties need to provide clear documentation, including proof of relationship (for family sales) and a letter confirming the terms of the discount.

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How Much Can You Borrow with a Concessionary Purchase Mortgage?

The amount you can borrow depends on:

• The Property’s Market Value: Lenders use the valuation to calculate the loan amount.
• The Discount: The size of the discount acts as equity, reducing the overall loan required.
• Your Affordability: Income, credit score, and financial commitments determine how much you can borrow.

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Steps to Secure a Concessionary Purchase Mortgage

1. Discuss Terms with the Seller
   • Agree on the discount and ensure both parties understand the terms of the sale.
2. Get a Property Valuation
   • Arrange for an independent valuation to confirm the property’s market value.
3. Choose a Suitable Lender
   • Research lenders that offer concessionary purchase mortgages. Consulting a mortgage broker can help streamline this process.
4. Provide Documentation
   • Submit proof of the relationship (if required) and a letter from the seller confirming the discount and its terms.
5. Complete Affordability Checks
   • Work with your lender to finalize affordability assessments and secure the mortgage.

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Real-Life Example of a Concessionary Purchase Mortgage

Scenario: A couple wants to buy a home from their parents. The property is worth £300,000, but the parents agree to sell it for £250,000 as a family discount.

• Discount as Equity: The £50,000 discount acts as a 16.6% deposit.
• Mortgage Amount: The couple applies for a mortgage of £250,000.
• Lender’s Perspective: The lender considers the transaction low risk due to the high equity and the reduced loan-to-value ratio.

The couple benefits from avoiding a cash deposit and secures favorable mortgage terms.

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FAQs about Concessionary Purchase Mortgages

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