Recently we’ve been dealing with a number of enquiries relating to property purchases where the clients are buying from their family or landlord and want to know their mortgage options and how it all works, these are called ‘Concessionary Purchases’.
We find most people are unaware these types of purchases even exist and have no idea what has to be taken into consideration from all parties involved when looking to do this, so here’s some helpful information on understanding concessionary purchases in Scotland.
A concessionary purchase in Scotland refers to a property transaction where the buyer agrees to purchase a home for less than its full market value. This is particularly common in transactions involving family members, for example, parents selling a home to their children at a discounted price to help them onto the property ladder. While concessionary purchases can offer financial benefits to buyers, they come with legal, mortgage and tax implications that must be carefully considered.
In a typical concessionary purchase, the family member or landlord agrees to accept a lower price than the property’s market value. For example, a home valued at £200,000 might be sold for £150,000. The £50,000 difference can be regarded as a form of “gifted equity.” This has implications for mortgage lenders, who assess the transaction not only on the purchase price but also on the market value of the property. For a transaction to be classed as a Concessionary Purchase, typically a minimum discount of 10% on the market value is expected but can vary lender to lender when it comes to looking at a mortgage.
The key benefit to the buyer is that the gifted equity can often be treated as part—or even all—of the deposit, so no deposit may be required for the buyer to put towards the purchase themselves.
For example, if the buyer is purchasing their parent’s property for £150,000 and it’s worth £200,000, the lender normally requires a deposit of a minimum 5%, however the gifted equity may fulfil or reduce that requirement in this instance. So, you could potentially borrow the full £150,000, as the deposit requirement has been met due to the discount of £50,000 being given against the property value.
Another benefit of this is the loan-to-value (LTV) ratio is calculated against the full market value, not the agreed purchase price as is the case in ‘normal’ purchase transactions, which means a lower interest rate is often available and in turn the actual monthly mortgage payments will be less. In the example above, the loan to value would be 75% as it’s a £150,000 mortgage against a value of £200,000, meaning access to better deals with lenders.
However, lenders do require that all concessionary arrangements are fully disclosed and supported by legal documentation from your solicitor. The seller must usually sign a gifted deposit declaration confirming that the discount is a genuine gift with no expectation of repayment and no continuing interest in the property. This protects both the buyer and the lender and ensures the transaction is transparent.
Tax implications also apply. While Land and Buildings Transaction Tax (LBTT) in Scotland is calculated on the actual price paid for the property, not the market value, other taxes may be relevant. For example, if the seller dies within seven years of making the gift, it may be considered part of their estate for inheritance tax purposes under UK-wide rules. Capital gains tax may also apply based on the market value of the property, particularly if it is not the seller’s primary residence.
Concessionary purchases are a useful way for family members or landlords to transfer a property in a financially supportive way. When handled correctly, a concessionary purchase can be a powerful tool in making home ownership more accessible however, as always, you should seek proper advice via a mortgage broker and solicitor, and all being well you could become a homeowner sooner than you think.
