My partner and I are looking to buy our first home. She lives with her mum who owns a number of rental properties as well as her own home. Her mum would like to downsize into one of the rental properties and sell us her home. The house is worth around £220,000, but she wants to sell it to us for £100,000 with the other £120,000 forming part of my partner’s inheritance. We’d like to know if we can use the £120,000 difference between the value and the sale price as the ‘deposit’ for a mortgage in the absence of a cash lump sum. Do many mortgage providers offer the option, in this case to get a £110,000 mortgage against the property, giving us £10,000 to use for renovations?
This type of purchase of a property at a discount from the open market value is something that is often referred to as a concessionary purchase. There should be a reasonably good choice of lender that can help.
However, lenders will take different approaches in criteria and what they may be prepared to offer. For example, many will require that the family member selling the property will not remain resident in the property.
Lenders will often be prepared to consider the open market valuation of the property rather than base their lending on the discounted price. But some will still require that you put down a deposit on the discounted price. Other lenders will be happy to advance as much as 100% of the discounted price subject to it meeting its required proportion of the purchase price. So, in this case, they could lend up to £100,000 but not extend beyond.
Some lenders may have the discretion to consider lending more for a specific purpose, such as home improvements, but many will impose a maximum limit at the discounted purchase price.
David Hollingworth is a mortgage broker at London & Country Mortgages in Bath. Find out who our experts are on the Ask the Experts homepage. Submit a question you might have on our Ask the Experts submission page.