In many cases, there might be a misconception that selling a property for less than it is worth is breaking the law, or is unethical - but there is no reason you cannot choose to do this.
Common examples include:
- One family member selling a property to another - often a parent is selling to a child to help them get onto the property ladder, while also saving estate agents fees.
- Seller undervaluing their home to achieve a faster sale - sometimes this occurs after a divorce, or the beneficiary of a will may need to sell the inherited property to settle the tax obligations arising from their inheritance.
- Needing to liquidate property assets quickly to cover debts - homeowners in financial difficulty may choose to sell their home to repay the debt and avoid a repossession scenario.
- Auction properties - often auctions have a reserve price, which is the minimum acceptable. That minimum can often be below market value. Some auction properties are repossessions, and therefore being sold on behalf of a claimant bank or at an original purchase price to prospective buyers.
Understanding Concessionary Mortgages
Concessionary mortgages let you buy a home at a price below its market value. The seller, often a family member, agrees to this deal as a form of financial help.
Explanation of a concessionary mortgage
A concessionary mortgage happens when someone sells a property at a discount to help another person, often a family member, buy their first home. This kind of sale lets the buyer climb onto the property ladder without having to save up for a large deposit.
The person selling the house might choose to sell it for less than its market value as an act of generosity or support.
This special arrangement requires that buyers still meet certain conditions set by lenders, such as passing credit checks and proving they can afford the mortgage repayments. Despite receiving the property at a lower price, buyers must navigate these financial assessments carefully.
Sellers should also be aware that they might have to pay capital gains tax on the full market value of their home, not just the discounted sale price. This makes it crucial for both parties to understand all implications before proceeding with a concessionary purchase price mortgage.
Types of properties eligible for a concessionary purchase
Council houses stand out as a primary option for those looking into concessionary purchases, thanks to the Right to Buy scheme. This initiative makes it possible for individuals to buy these properties at prices below market value, providing a unique opportunity for homeownership.
Different types of homes, including apartments and detached houses fall under this category, offering various choices for potential buyers.
Moreover, certain mortgages cater specifically to seniors, with options available for the over-80s and over-50s demographic. These tailored solutions make it easier for older adults to purchase suitable properties under concessionary terms.
Whether looking for a comfortable retirement home or downsizing options, these special mortgage plans help in acquiring property under market value efficiently.
Limitations of the discount amount
The discount on a concessionary mortgage might seem appealing, but it's not without its boundaries. Discounts can range widely, from as little as 5% to as much as 100% of the property's market value.
This variability means that while some buyers enjoy substantial savings, others might find the discounts less significant than hoped for in making homeownership more affordable.
Sellers must also consider potential financial implications beyond the sale price reduction. For instance, selling a property under market value can trigger capital gains tax obligations based on the home’s full market value, not just the sale price.
Additionally, if a seller offers a discount to a family member for a concessionary purchase UK style, this generosity could be viewed by tax authorities as a gift and may attract inheritance tax liabilities down the line.
These aspects limit how deep discounts can go without financial repercussions for sellers and possibly affect their willingness to offer substantial concessions.
Pros and Cons of a Concessionary Mortgage
Exploring the pros and cons of a concessionary mortgage can help homebuyers understand if this path suits their financial goals. A concessionary purchase offers unique advantages and challenges that impact both short-term budgets and long-term financial plans.
Advantages of a concessionary purchase
Concessionary purchases offer significant benefits for individuals aiming to climb the property investing ladder. Key advantages include financial flexibility and the ability to secure a home possibly sooner than traditional methods allow.
- Zero deposit requirement: One of the most compelling perks of a concessionary mortgage is that buyers don't need to save for a deposit. The discount on the property acts as a deposit, which simplifies the buying process significantly.
- Easier access to homeownership: This approach greatly assists individuals, especially family members, in purchasing their first home. It reduces the financial barriers that often delay or prevent homeownership.
- Potential stamp duty savings: Buying a house under market value might also lower the amount of stamp duty payable, making it cost-effective in more ways than one.
- Strengthens family bonds: Families can use this method to support each other financially. Parents or grandparents assisting in securing a mortgage strengthen relationships and provide security for future generations.
- Reduced property prices: Purchasing properties at below market value means immediate equity in the new home, offering buyers a head start in building their asset portfolio.
- Wide eligibility range: Properties can be acquired from family members, friends, landlords, employers, or housing developers using concessionary mortgages, providing buyers with diverse options.
