Everything you need to know about concessionary mortgages 

You might not believe it if you were told that there is a little-known type of mortgage which doesn’t require a deposit – and allows the buyer to purchase a home for substantially less than its market value.

It does exist, and it is called a concessionary mortgage – although these can only be used in a certain set of circumstances.  

Concessionary mortgages are mostly used by landlords selling a house to their tenants, or by family members selling property, for example after an inheritance.

The key difference between this and a normal mortgage is that the seller must be willing to sell their house for at least 10 per cent below market value.

Two to tango: Both buyer and seller need to agree to the terms of a concessionary mortgage

That concept alone will have many readers spitting out their tea in shock. After all, we are so accustomed to the idea of selling property for more than we bought it for that the idea of willingly taking a hit on the price can seem like an alien concept.

But there are some situations where money isn’t everything, and where selling a house below market value makes sense – and can even mean saving money.

A concessionary mortgage works where the seller has a vested interest in selling to a particular buyer. 

Strictly speaking, a concessionary mortgage is just a form of standard residential mortgage, with a few tweaks about where the deposit comes from and the house price.

How does a concessionary purchase mortgage work?

Perhaps parents want to sell their old family home to their children, or want to sell a house when they move into residential care. Or maybe a landlord wants to sell up to friendly tenants with as little hassle as possible.

The seller then gifts the buyer the deposit, in the form of equity in the property – from 10 per cent upwards. The buyer can chip in their own cash too, if they want, to get a bigger deposit.

To keep the maths simple, imagine a homeowner wants to sell a house worth £100,000 to a family member using a concessionary mortgage.

The buyer is offered a 10 per cent discount, so £10,000. They then get a 90 per cent loan-to-value concessionary mortgage on the remaining £90,000.

The advantage for the buyer is obvious – they get to buy a house at a discount and spend little to none of their own money on the deposit.

What’s in it for the property seller? 

cost of living

For the seller, any advantages depend on their personal situation. 

For example, when landlords want to sell a rental property, this can mean a house sitting empty for months, with no rental income coming in – and estate agent fees to pay on top.

Selling to a tenant, on the other hand, means no estate agent fees, a speedy no-strings sale and guaranteed rental income until the property eventually transfers over.

For a family member selling a house, getting slightly less than market rate for the property might not be a problem. 

Helping a loved one onto the property ladder can be its own reward. Besides, if a seller has owned the house for years then rising property values mean they are still likely to make a big profit.

Graham and Lisa are buying the bungalow they rented using a concessionary mortgage

Graham and Lisa are buying the bungalow they rented using a concessionary mortgage

One couple buying a house with a concessionary mortgage are Graham, 31, and Lisa, 29.

The couple are buying a two-bedroom bungalow in the home counties from their previous landlord.

Graham said: ‘The concept of the concessionary mortgage was new to us. It all started in March when our landlord phoned up. He said he was looking to sell the house. 

‘Me and my wife had talked about the possibility of buying the house before, and he’d made a passing comment that he might want to sell to us.

We didn’t want to rent another property and go through the trouble of moving, so we said we’d try to buy the house

‘The rental market is probably the worst it’s ever been, and properties are few and far between – and very expensive. 

‘We didn’t want to rent another property and go through the trouble of moving, so we said we’d try to buy the house.’

The bungalow is worth around £280,000. The couple put in a deposit of £20,000. That was then topped up to around £50,000 with equity through the mortgage, giving them an overall deposit of around 15 per cent of the house price.

That 15 per cent deposit, in turn, means access to cheaper mortgages than those available to most first-time buyers with deposits of 5 to 10 per cent.

Lisa and Graham are paying 4.4 per cent for a five-year fixed rate, far below the 5.03 per cent average for this type of home loan.

Aside from the perks of the house price discount and the extra help with the deposit, Graham said it was a relatively easy process getting the mortgage.

Buying a house they already rent also gave the couple peace of mind that there were no nasty expensive surprises lurking, as they know every nook and cranny of the property.

It also means not having to slog it out with other buyers and spend endless hours viewing properties.

Normally, first-time buyers want to purchase a house for the lowest possible price and are gunning for a bargain.

But that is turned on its head with a concessionary mortgage, as buyers don’t want the price to fall too low.

The mortgage lender involved will value the property – and the buyer will have their fingers crossed that the house price isn’t bumped down too much.

‘The scariest moment was the house had to be valued,’ Graham said. ‘Weirdly for us, if the house was downvalued then we would have to renegotiate the price, and that might push it to a point where the landlord did not want to sell.’

Lenders which offer concessionary mortgages include TSB, Halifax, Barclays and NatWest.

TSB mortgage distribution director Roland McCormack said: ‘Over the past six to 12 months we have been seeing a big take-up of the scheme among landlords and tenants. With interest rates going up, many landlords want to release their gains and exit the market.

‘They aren’t paying any estate agent fees, and aren’t losing any rent, so it’s more like a 5 per cent loss rather than 10 per cent.’

Most houses bought with concessionary mortgages are priced at around the average for the region, and are almost all bought by first-time buyers. 

Rates for these home loans are the same as with standard residential mortgages, and the products are almost all sold through brokers. 

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