TSB is offering a new mortgage option that makes it easier for tenants to buy their home from their landlord.
With the 5&5 Concessionary Mortgage, landlords offer tenants a 5% discount on the purchase price of the property. The buyer additionally contributes his own deposit – this must be a minimum of 5%.
It means that tenants and first-time buyers, who often have difficulty getting into the housing market due to the high costs of collecting a down payment, can get help in buying their own home.
Meanwhile, it also provides a solution for landlords who want to sell as a result of tax changes that have come into effect in recent years.
TSB said government data showed a third of landlords planned to sell their rental properties in the next two years. This 5% option could therefore compensate for the 5% discount by saving on real estate agent costs or by paying a few months’ mortgage interest if the property is vacant.
Roland McCormack, director of mortgage distribution at TSB said: “TSB Concessionary Mortgages are already helping customers bridge the gap between renting and home ownership, making it easier for renters to secure the properties they already call home.
“Higher mortgage costs are causing many landlords to want to release their profits and exit the market. A 5% discount could be fully offset by the savings on agency costs and not missing out on several months of rental payments.”
The 5&5 mortgage will complement TSB’s 10% scheme, where landlords sell their property to a tenant at a discount of 10% or more on market value, meaning the buyer will not need a deposit.
What are concessional mortgages?
Concessional mortgages are usually more of an arrangement with the lender than a specific mortgage product. They are most commonly used by families – for example, where a parent sells a property to their adult child and offers it at a lower price.
David Hollingworth, associate director at L&C Mortgages, explains: “Lenders can often accept this approach, which allows the mortgage to be secured at the full market value of the property.
“That could allow the buyer to purchase the property without even having to put down a deposit and still have access to a lower price [loan-to-value] mortgage interest rate, although some lenders prefer that a portion of the down payment come from the buyer.”
Where TSB’s product provides some innovation in this market is that, while Hollingworth says many lenders are happy to accept a concessional purchase if the sale is to a close family member, not everyone will be able to help if a landlord is willing to offer a discount. to their tenant.
He continued: “With Landlords are affected by rising mortgage ratesTighter criteria and higher tax bills will inevitably see some considering downsizing their portfolios, despite the budget not imposing any capital gains tax increases.
“So there could be some benefit to both a tenant and a landlord if they are willing to offer a discount on the purchase price, which could help a tenant by effectively increasing the security deposit.
“This can help the tenant, but can also be mutually beneficial and contribute to a faster transaction time, potentially avoiding the need to market the property and the costs that could result for the seller.”
Are there other favorable mortgages for tenants and landlords?
Moneyfactscompare.co.uk, which maintains data on mortgages, does not record this element of a mortgage agreement and as such there is no information on how many transactions contain concessional elements.
However, Hollingworth said there are other lenders who could consider this scenario and, anecdotally, he had heard of lenders being approached with this situation because of the tax increases landlords are now facing.
He added: “TSB has clearly thought about how it can broaden its policy a little further to help more tenants take the step towards home ownership.”
Meanwhile, Rachel Springall, financial expert at Moneyfactscompare, said: “The market could always do with more product innovation to help people struggling to get a mortgage, as those stuck paying the rent may feel like their dreams of home ownership are dashed due to the lack of affordable housing. which will take time to improve.
“As we head into 2025, it will be interesting to see how lenders will strike the balance between supporting their existing customers and attracting new customers as the future of interest rates remains unpredictable.”