A concessionary purchase describes a scenario where a buyer is knowingly purchasing a property at a discount from its market value, granted by the vendor, and the equity in the property is gifted.
Why might a concessionary purchase help me get onto the property ladder?
Aside from the benefit of the discount itself, a concessionary purchase can impact the amount of deposit you require.
Some lenders will use your agreed purchase price as the property value, so you will require a smaller deposit. For example, if you are putting down a 10% deposit, and the market value of the property is £200,000 but you have agreed a purchase price of £160,000, your deposit will be £16,000 instead of £20,000.
Other lenders will use the equity in the property as the deposit, and this could mean no further cash deposit is required if the gifted equity is high enough. For example, the market value is £200,000 and the purchase price is £160,000, so the equity in the property is £40,000 and this amount can be considered as your deposit.
Who might offer me a discount?
While there are several types of concessionary purchase, such as gifted equity from landlords and developers, the most common is for family to gift equity by discounting the purchase price of a property they own.
If your parents own a property that you are buying from them, through a concessionary purchase they can discount the property from the market value and gift the equity to you as a deposit.
Why would the vendor discount the purchase price?
There are many reasons why it may make sense to sell a property at a discount from the market value as a concessionary purchase. A landlord offering a discount to an existing tenant, for example, could facilitate a quick sale, avoid estate agents fees and prevent the property from standing empty while on the market and losing rental income.
In the case of family and parents trying to get children on the property ladder, the cash to help with a deposit may not be available, but if it is tied up in further properties, this could mean a sale to a third party doesn’t have to take place to release the equity. It also means the property is not being sold at less than market value without anyone benefiting from the equity that has built up.
Do I need to repay the discount?
If it is a condition of the discount that you need to repay the equity used as the deposit at some point in the future, then it can’t be viewed as a concessionary purchase; the equity gifted needs to be done so outright with no conditions or restrictions. If it is required to be repaid, it will be considered by the lender as a loan and can’t be used as a deposit.
For more information on concessionary purchases and finding a mortgage that is most suitable for your circumstances, contact our specialist mortgage adviser Dee, on firstname.lastname@example.org