Can a Landlord Discount Count as Your Deposit?

Many long-term tenants want to buy the property they already live in, and some landlords encourage this by offering the property at below its market value. This type of transaction—known as a concessionary purchase—can significantly reduce the upfront cost of buying. One of the most frequent questions tenants ask is: can a landlord discount count as your deposit?

In many cases, yes it can. But lender policies vary, and understanding how gifted equity works is essential. This guide explains how landlord discounts are assessed, when they can be used as a deposit, and what to expect during the mortgage process. This article provides general information only and does not offer regulated mortgage advice.

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What Is a Landlord Discount?

A landlord discount occurs when a landlord sells a property to their tenant at below market value.
Example:

• Market value: £240,000
• Sale price: £200,000
• Discount: £40,000

The £40,000 becomes gifted equity.

If accepted by the lender, this equity may replace the buyer’s cash deposit.

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Can a Landlord Discount Count as Your Deposit?

Yes — many lenders allow it.

In concessionary purchases, lenders often treat the discount as a form of gifted equity, meaning it can satisfy all or part of the deposit requirement.

How It Works

If a lender requires a minimum 10% deposit, and the landlord discount amounts to at least 10% of the property’s market value, the discount may completely cover the deposit.

Example

• Market value: £250,000
• Sale price: £225,000
• Discount: £25,000 (10%)
• Required deposit: 10%

Here, the discount matches the required deposit, meaning no cash deposit may be needed—subject to lender criteria.

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Why Lenders Accept Landlord Discounts

1. The Discount Creates Genuine Equity

The discount is real, measurable, and confirmed through valuation.

2. Reduced Risk for the Lender

A lower loan-to-value (LTV) ratio reduces the lender’s exposure.

3. Clear Motivation

The relationship between landlord and tenant is easy to verify, reducing concerns about artificially inflated values.

4. Straightforward Evidence Trail

The tenancy agreement and gift of equity letter act as proof for underwriting.

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Do All Lenders Accept a Landlord Discount as a Deposit?

Not all.
While many lenders accept landlord gifted equity, some have restrictions such as:

• Only accepting discounts from family members
• Requiring a minimum tenancy length
• Capping the LTV even when equity is available
• Requiring the tenant to contribute some cash toward the deposit

This is why understanding lender criteria is important when exploring can a landlord discount count as your deposit.

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LTV (Loan-to-Value) Based on Market Value, Not Sale Price

Lenders usually assess LTV using the market value established by the valuation, not the discounted price.

Example:

• Borrowing: £200,000
• Market value: £240,000

LTV = 83%

This allows lenders to offer mortgages even where the tenant is borrowing nearly 100% of the discounted price.

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What Documents Are Needed?

To accept a landlord discount as a deposit, lenders typically request:

1. Gifted Equity Letter

The landlord must confirm:

• The discount is a gift
• No repayment is required
• They will not retain any interest in the property
• The gifted amount (difference between market value and sale price)

2. Tenancy Agreement

Proof of a genuine landlord–tenant relationship.

3. Rent Payment Evidence

Often three to twelve months of bank statements showing rent paid.

4. Property Valuation

Confirms the discount is genuine and the property is sound security.

5. Standard Mortgage Documents

Including ID, income evidence, and bank statements.

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When a Landlord Discount Might Not Count as the Full Deposit

There are cases where lenders may not accept the entire discount:

1. The Discount Is Too Small

If the discount is only 5% but the lender requires a 10% deposit, you may need to contribute cash.

2. The Valuation Is Lower Than Expected

If valuation lowers the market value, the effective discount shrinks.

3. Lender Does Not Accept Non-Family Gifted Equity

Some lenders restrict gifted equity to family members.

4. Significant Property Issues

Structural problems may reduce valuation and affect LTV.

5. Recent Adverse Credit

A lender may require a cash deposit to offset perceived risk.

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How a Discount Affects Your Remortgage Options Later

Once you own the property:

• The gifted equity becomes part of your total equity
• Future remortgages are based on market value at that time
• You are not required to document the original discount again
• A strong equity position may improve LTV brackets

The concessionary structure matters only during the initial purchase, not during future remortgages.

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Pros of Using a Landlord Discount as a Deposit

• May eliminate the need for savings
• Faster route to property ownership
• Potentially stronger equity position from day one
• Less competition compared with open-market sales
• Clear documentation trail for lenders

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Considerations Before Relying on the Discount

• Not all lenders accept landlord gifted equity
• Valuation outcomes can affect deposit requirements
• Property condition may impact lender confidence
• You may still need funds for fees and moving costs
• Solicitors require additional documentation

Understanding these factors supports a realistic approach to the mortgage process.

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Example Scenarios

Scenario 1: Tenant Has Strong Credit and 15% Discount

Most lenders likely to accept discount as full deposit.

Scenario 2: Tenant Has Recent Arrears but 20% Discount

Some lenders may accept, but specialist lenders may be required.

Scenario 3: Tenant Has Minimal Discount (5%)

Cash deposit likely needed to meet lender LTV requirements.

Scenario 4: Valuation Comes in Lower Than Expected

Discount reduces; lender may request deposit top-up.

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Tips to Prepare for Using a Landlord Discount as a Deposit

Although this is not personalised advice, tenants often prepare by:

1. Collecting rent payment records

Shows consistent history.

2. Checking all credit files

Ensures no unexpected issues appear during underwriting.

3. Preparing income documents early

Payslips, accounts, and tax documents should be up to date.

4. Ensuring landlord understands the gifted equity letter

It must meet lender wording requirements.

5. Keeping the property ready for valuation

Clear access helps surveyors assess accurately.

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Summary

If you are asking can a landlord discount count as your deposit, the answer is that it often can. Many lenders accept the discount as gifted equity, allowing tenants to buy without a traditional cash deposit. The valuation must confirm the discount, documentation must be clear, and affordability and credit checks still apply. With the right preparation, landlord concessionary purchases can be a practical route into home buying.

This article provides general information only. For individual guidance, regulated mortgage advice is required.