Ashley Pearson, Head of Intermediaries at Loughborough Building Society
The challenges facing first-time-buyers (FTBs) have been well documented over the years, with rising rents, limited housing stock, stagnant wages and the cost-of-living crisis placing additional pressure on the disposable income of many would-be buyers.
Most recently, these challenges have been further exacerbated by the higher interest rate environment and widespread economic uncertainty that has gripped the UK, all of which have combined to make saving for a deposit even harder than before.
It’s not just FTBs who have been feeling the pinch. Second steppers, buy-to-let (BTL) landlords and many of those approaching retirement age have also felt the impact of increased living costs, some of whom have seen their borrowing capacity reduced as they struggle to overcome affordability barriers.
Against this backdrop, the number of borrowers turning to family members to help them get onto the property ladder has increased. In fact, research carried out by Legal & General shows the Bank of Family was expected to provide support for almost half (47%) of house purchasers under the age of 55 in 2023 alone.
However, given the recent economic challenges faced by all homeowners, gifting deposits and financial contributions may no longer be a viable option for many. In which case, a concessionary purchase mortgage could prove a suitable alternative by allowing family members to sell their home to another family member at a rate which is below market value.
In the majority of cases, lenders offering concessionary purchase mortgages will allow the sale of a property at a discounted price with no deposit, provided it is between family members. In some cases, this can also include step parents.
Concessionary purchases between family members means that applicants can use the equity within the property being sold to fund the deposit, which helps to make the purchase more affordable by reducing the overall price.
Some lenders, such as The Loughborough Building Society will also consider applications where the parents may want to sell their residential property to their son or daughter but would like to continue living in the property under a family BTL mortgage.
This can prove to be a useful solution for borrowers approaching retirement age who may have seen their disposable income significantly reduce as a result of increased living costs and can no longer continue with their mortgage.
In this case, a concessionary purchase of the property can be made by the owner’s son or daughter provided they are homeowners themselves and earn a minimum of £25,000 a year. Under these circumstances, seeking independent legal and tax advice is recommended as there could be some inheritance tax implications.
Concessionary mortgages can also be used by landlords looking to offload a property before the end of the current tax year by selling it to an existing tenant. This can prove to be a good arrangement for any FTB renting a property in an area they like, as it could provide them with a viable solution to get on the property ladder.
It can also help the landlord avoid the time and effort involved in putting the property on the market, as well as potentially saving them thousands of pounds in estate agency fees by carrying out a private sale.
In this scenario, the landlord is able to contribute to the deposit by offering a reduction on the price of the property as an equity gift, however, the applicant would also be required to put down a 5% deposit to secure the sale.
The mortgage rates and terms offered on a concessionary mortgage are usually similar to a standard mortgage, but it’s important to note that not all lenders offer them. Advisers with clients who may be interested in the concessionary purchase option should always ensure they engage with lenders who are experienced in such a transaction and have the capacity and capability to underwrite this type of mortgage application. And for those borrowers who may not realise that this may be an option, this is an area in which well-informed advisers can really shine.