Concessionary purchase?

Hmsxxxx

After getting rid of nearly 13k worth of debt me and my partner are £400 off being debt free and hopefully in a few months will be ready to buy his mums house. What we want to know is how does a consessionary purchase work exactly and what will his mum need to do? I’m guessing she won’t need to pay an estate agent as she already has buyers? (Us) she’s gifting 10% as the deposit, does she need to write stating this? We went to a mortgage broker this time last year but only to see if we could borrow what we needed to purchase and to see if 10% being gifted would be enough as our deposit. Sorry if these questions sound silly but being FTB we don’t really have a clue.

eddddy

There are lenders who offer "concessionary purchase mortgages", which seem to be what you're looking for. Here's a couple of examples:

https://www.nationwide-intermediary.co.uk/lendingcriteria/purchase_types/genuine_bargain_price
http://intermediary.tsb.co.uk/criteria/residential-criteria/concessionary-purchase/

Hmsxxxx wrote: »

I’m guessing she won’t need to pay an estate agent as she already has buyers?

That's correct - no need to instruct an EA.

Hmsxxxx wrote: »

she’s gifting 10% as the deposit, does she need to write stating this?

If you go for a concessionary purchase mortgage - she is not really gifting you 10% as a deposit. She is selling you the property at 10% under market value.

A mortgage broker will explain what paperwork is required, including what your mum has to sign.

ACG

If we assume the value is £100,000 and your partners mum is happy to give you £10,000 you would effectively purchase the property for £100,000 and get a mortgage for £90,000.

The £90,000 would get paid to your partners mum and she would sort out her side. Assuming there is at least £10,000 equity in the house then all should be fine.

Mum would not need to do anything more than sign a form usually. Most lenders would have no issue with this in the main but some lenders would make it easier than others.

Tom99

ACG wrote: »

If we assume the value is £100,000 and your partners mum is happy to give you £10,000 you would effectively purchase the property for £100,000 and get a mortgage for £90,000.

The £90,000 would get paid to your partners mum and she would sort out her side. Assuming there is at least £10,000 equity in the house then all should be fine.

Mum would not need to do anything more than sign a form usually. Most lenders would have no issue with this in the main but some lenders would make it easier than others.

I think the way it will work is that in your example the OP buys for £90,000 and most likely the mortgage co will require mum to sign gifted deposit of £10,000 however, contract, transfer and stamp duty will say £90,000.

SDLT_Geek

On the issue of whether the contract / transfer / land transaction return for SDLT would put the full value (£100,000 on the example figures above) or the actual cash price being paid (£90,000) see the article here: https://www.blakemorgan.co.uk/news-events/blog/bank-mum-and-dad-concessionary-purchases/ about the difference between:

(a) gifted deposit on the one hand (£100,000) and

(b) concessionary purchase / transfer at undervalue / gifted equity / family discount / genuine bargain price on the other hand (£90,000).

For higher value properties it can make a difference to the SDLT payable.

Tom99

SDLT_Geek wrote: »

On the issue of whether the contract / transfer / land transaction return for SDLT would put the full value (£100,000 on the example figures above) or the actual cash price being paid (£90,000) see the article here: https://www.blakemorgan.co.uk/news-events/blog/bank-mum-and-dad-concessionary-purchases/ about the difference between:

(a) gifted deposit on the one hand (£100,000) and

(b) concessionary purchase / transfer at undervalue / gifted equity / family discount / genuine bargain price on the other hand (£90,000).

For higher value properties it can make a difference to the SDLT payable.

Just to clarify, will stamp duty be paid on whatever the contract amount say? So if the mortgage co would like a gifted deposit letter but are happy that this gift is actually to sell the house at a discount them SD would be on the lower amount and any FTB SD discount could still be claimed?

SDLT_Geek

Tom99 wrote: »

Just to clarify, will stamp duty be paid on whatever the contract amount say? So if the mortgage co would like a gifted deposit letter but are happy that this gift is actually to sell the house at a discount them SD would be on the lower amount and any FTB SD discount could still be claimed?

Yes, mostly.

Yes that SDLT is due on the price agreed to be paid (which should be as recorded in the contract and transfer).

But no, if the mortgage lender requires the parents to say that they gifted the cash sum of £10,000 then that is consistent with the price being £100,000 (using the gift to pay the full market value). That is what a "gifted deposit letter" is likely to say.

It is fine if the mortgage lender ask the parents to sign a letter confirming that the house is to be sold at a discount and that the discount is the gift and the parents expect no more money. In that case the price is properly £90,000 and SDLT is calculated on that.

Gifted deposit is bad for SDLT, gifted equity is good.

Yes, if the other conditions are met then first time buyers' relief should be available on this structure.