Little-known mortgage where first-time buyers need ZERO deposit
A little-known mortgage could help renters buy their first home without the need for a down payment.
A concessional purchase mortgage allows potential homeowners to purchase a property for less than market value.
It is also called a BMW (below market value) purchase.
This type of mortgage allows a tenant to purchase the property in which they already live.
The landlord offers a discount that is equal to the amount that a starter would normally pay as a down payment.
For example, a buyer can get a concessional mortgage of £90,000 on a house worth £100,000 if the owner reduces the price by 10%, or £10,000.
With a typical mortgage, first-time buyers would need to have this amount saved to put down as a down payment.
Moreover, the mortgage interest is no higher than with a regular purchase mortgage.
While it may seem counterintuitive for landlords to do this, it can help them close a sale more quickly than through the open market.
They also save on associated costs, such as advertising the property, real estate agents and the risk of an empty property if a tenant leaves before a buyer is found.
Lenders offering concessional mortgages include Nationwide, Halifax, Barclays and Leeds Building Society.
For tenants who want to grow in the housing market, it can also be an attractive option if rental costs rise, making it difficult to save for a home guarantee.
According to real estate website Rightmove, average asking rents reached a new record in the last quarter of 2023.
Outside London, the average monthly rent peaked at £1,280 per month, while in London it averaged £2,631.
You apply for a concessional mortgage in the same way as you would any other mortgage, and you'll need to consider issues such as affordability.
Consider your income, how much you spend per month and the deposit you have paid on the home you are purchasing.
The Sun shares how to apply for a mortgage and increase your chances of acceptance.
Below we explain the advantages and disadvantages of concessional mortgages.
What are the benefits of a concessional mortgage?
You don't need a down payment
The main advantage of a concessional mortgage is that you do not need a deposit.
Karen Noye, a mortgage expert at Quilter, said: “The discounted price can be used as a deposit or down payment so that the difference in the agreed price and the full market value can cover the required deposit.
“In some cases, depending on the borrower's situation and finances, they may not have to make any kind of down payment themselves.”
Some lenders accept concessional purchases but require the buyer to make a minimum five or ten percent down payment from their own funds.
Lenders base your mortgage's loan-to-value on market price, or below-market purchase price – which is the discounted price of the house.
Mortgage expert Nick said: 'If they use market price you start with more equity in the property.
“This gives you a lower LTV, giving you access to better rates.
“If they charge the purchase price, you don't benefit from a lower LTV and lower rates, but you still buy a house for less than market value.”
Less stress
Buying a home is notoriously stressful, so buying from your landlord (someone you already know) can make the process easier.
Mortgage expert Karen said: 'Buying from your landlord means you already know the property and the area, and if you have worked on or furnished the property then you will benefit from the money spent.
“Plus, you don't have to worry about moving or finding another property, which can relieve a lot of stress.
“It can also reduce overall moving costs and expenses incurred, such as relocations or putting down a deposit on a new rental property.”
Since the average cost of packing, disassembling and delivering furniture is $1,000, you can save a small fortune.
What are the disadvantages of a concessional mortgage?
They are not available from all lenders
Not all lenders allow concessional mortgages, meaning there may not be much choice.
Karen said: 'The discount may also need to be at a certain level to meet their credit criteria.
“Additionally, some may require the borrower to also make a personal deposit in addition to the stock gift.”
Nationwide and Halifax, for example, require a minimum 10% discount.
Some lenders accept concessional purchases but require the buyer to make a minimum five or ten percent down payment from their own funds.
There may be problems with the accommodation
Even if you live in the property, it is a good idea to have an appropriate survey carried out before purchasing, just in case there are any potentially costly defects.
Nick Mendes said: 'A property can be sold below market value due to issues or problems with it, which can involve extensive and expensive repair work.
“It is important to consider the type of survey required if you suspect the property has hidden problems that could circumvent a simple property assessment.”
According to the HomeOwners Alliance, a home survey can cost between £400 and £1,500.
While this may seem pricey, it can save you a huge repair bill later.
Other starter schemes where you need a small or no down payment
Several major banks and building societies allow first-time buyers to borrow the full amount needed to purchase their home.
These deals are often called 100% loan-to-value mortgages because you don't need a down payment to purchase.
Last year Skipton Building Society launched its Track Record 100% mortgage available to tenants buying their first ever property.
The only catch is that the amount you can borrow has a limit, because your monthly repayment cannot be more than what you currently pay in rent.
Real estate developer Fairview recently launched its Save to Buy program.
This allows starters to save for their final deposit after their move.
Buyers pay a fixed amount monthly into a Fairview piggy bank instead of rent.
You only need a 1% deposit to get started and when you've built up enough equity, you can apply for a mortgage to buy your home.
Thanks to the Right to Buy scheme, tenants of social housing can buy the home they rent with a discount of up to 70%.
You get a 35% discount on your social housing if you have been a tenant in the public sector for three to five years.
The right to purchase is similar to the right to purchase, but offers people who rent from a housing association or another public sector landlord the opportunity to buy their home.
It is open to anyone renting in the public sector for three years or more and offers a discount of £9,000 to £16,000 on the purchase price.
How much you get depends on the location of the home.
Meanwhile, a little-known scheme is giving first-time buyers up to £16,000 off their home. Can you sign up?
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