Everything you need to know about concessionary mortgages 

You might not believe it if you were told there’s a little-known form of mortgage that requires no down payment – and allows the buyer to purchase a home for significantly less than its market value.

It does exist, and it’s called a concessional mortgage – although these can only be used under certain circumstances.

Concession mortgages are usually used by landlords who sell a house to their tenants, or by family members who sell property, for example after an inheritance.

The main difference between this and a normal mortgage is that the seller must be willing to sell his house for at least 10 percent below market value.

That concept alone will make many readers spit out their tea in shock. After all, we’re so accustomed to the idea of ​​selling property for more than we bought it for that the idea of ​​voluntarily taking a hit on the price can seem like a foreign concept.

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

A concessional mortgage works when the seller has a vested interest in the sale to a particular buyer.

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

How does an affordable purchase mortgage work?

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

The seller then gives the buyer the down payment, in the form of equity in the property – starting at 10 percent. The buyer can also deposit their own money if they wish to get a larger deposit.

To keep the math simple, imagine a homeowner wants to sell a home worth £100,000 to a relative using a bargain mortgage.

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

The benefit to the buyer is obvious: they can buy a home at a discount and spend little or none of their own money on the down payment.

What’s in it for the property seller?

For the seller, any benefits depend on his personal situation.

For example, when landlords want to sell a rental property, this could mean leaving a house vacant for months on end, with no rental income coming in – and having to pay brokerage fees on top of that.

Selling to a tenant, on the other hand, means no agency fees, a quick sale without obligations and guaranteed rental income until the property is finally transferred.

For a family member selling a house, getting a little less than the market price for the property may not be a problem.

Helping a loved one up the property ladder can be its own reward. Besides, if a seller has owned the house for years, the rising value of the property means he will probably still make a big profit.

Graham and Lisa buy the bungalow they rented with a discounted mortgage

A couple buying a home on a discounted mortgage are Graham, 31, and Lisa, 29.

The couple buys a two-bedroom bungalow in the provinces from their previous landlord.

Graham said: ‘The concept of the concessional mortgage was new to us. It all started in March when our landlord called. He said he wanted to sell the house.

“Me and my wife had previously discussed the possibility of buying the house, and he had mentioned in passing that he might want to sell it to us.

“The rental market is probably the worst it’s ever been, and properties are rare — and very expensive.

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

The bungalow is worth around £280,000. The pair put down a £20,000 deposit. That was then topped up to about £50,000 with equity through the mortgage, giving them a total down payment of about 15 per cent of the house price.

That 15 percent down payment, in turn, means access to cheaper mortgages than those available to most first-time buyers with a 5 to 10 percent down payment.

Lisa and Graham pay 4.4 percent for a five-year fixed rate, well below the 5.03 percent average for this type of home loan.

Aside from the benefits of the house price discount and the extra down payment assistance, Graham said getting the mortgage was a relatively simple process.

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

It also means you don’t have to dabble with other buyers and spend endless hours viewing properties.

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

But that is turned on its head with a discount mortgage, because buyers don’t want the price to drop too low.

The mortgage lender involved will value the property – and the buyer will keep their fingers crossed that house prices don’t drop too much.

“The scariest moment was when the house had to be appraised,” said Graham. “Odd to us, if the house had fallen in value, we would have to renegotiate the price, and that could drive it to a point where the landlord doesn’t want to sell anymore.”

Lenders offering discounted mortgages include TSB, Halifax, Barclays, and NatWest.

Roland McCormack, TSB’s Director of Mortgage Distribution, said: ‘Over the past six to 12 months we have seen great adoption of the scheme by landlords and tenants. With interest rates rising, many landlords are looking to release their profits and exit the market.

“They don’t pay brokerage fees and don’t lose rent, so it’s more like a 5 percent loss than a 10 percent loss.”

Most homes purchased with discount mortgages are priced around the average for the region and almost all are purchased by first-time buyers.

The rates for these home loans are the same as regular home mortgages and the products are almost all sold through brokers.