Concessionary mortgages have received an increased amount of airtime in recent months as a growing number of landlords seek to exit the housing market.
A recent article in The Guardian shows that enquiries and demand for this type of mortgage is on the rise as would-be homebuyers take advantage of landlords looking to dispose of their buy to let (BTL) assets in a challenging market.
Changes to tax relief coupled with higher overall mortgage costs have been eroding the return on investment properties and landlords have been faced with an uncomfortable situation.
A concessionary purchase can offer a relatively straightforward exit strategy for landlords by rewarding long-standing tenants, who are stable in the property, and reducing the risk of a prolonged period seeking a suitable buyer. As long as the landlord can get enough capital from the property sale, it’s a mutually beneficial solution.
This is presenting an opportunity for prospective first-time buyers (FTBs) or long-term tenants to get a foot on the property ladder by purchasing a rental property from their existing landlord at a discounted price.
A viable solution that can work both ways
Concessionary purchase mortgages work by enabling the borrower to purchase a property at below the property’s market value. The current owner, usually landlord or family member, gifts the difference between the market value and the purchase price to the borrower.
The growing popularity of this type of lending is easy to understand given the benefits concessionary mortgages offer to both landlords and buyers alike.
For prospective buyers, they offer a viable solution to get on the property ladder with a reduced deposit, or even without a deposit, as well as the opportunity to purchase a property they already rent in an area they like and are familiar with.
As well as a potentially smoother and quicker sale, a private sale to an existing tenant can also help landlords save thousands of pounds in estate agency fees, which for some, can help to negate the reduction in the property’s sale price.
Offering versatility to enable borrowers
As a staunch advocate of helping FTBs and those borrowers struggling to raise a deposit get onto the property ladder, Mansfield Building Society is a keen proponent of concessionary mortgages and gifted deposits.
In a recent example, Mansfield helped a young family purchase the home they were renting from a landlord despite them having some complex circumstances that impacted on their financial situation. These included illness, redundancy and previous credit blips that led to the family’s application to purchase a property being declined on the high street.
However, using an individual and commonsense approach to lending, Mansfield was able to offer the applicants a mortgage through our Versatility range. A number of factors were accommodated to get the application over the line including a gifted deposit from the landlord, historic credit defaults and an applicant within an employment probationary period.
By taking the time to individually assess and understand the circumstances surrounding the case, Mansfield was able to provide a cost-effective solution that helped a deserving family get onto the first rung of the housing ladder.
Turning opportunities into crucial first steps
Although this type of lending has historically been considered to be relatively niche, the increasing relevance of concessionary mortgages clearly shows its potential for helping prospective FTBs and landlords alike.
However, the challenges of recent times will be affecting buyers’ perceptions of the potential opportunities they face. By working with flexible lenders on concessionary purchases, brokers can reduce the risks for landlords and importantly, help more borrowers take the step toward homeownership.
