Gifted Equity on a Family Concessionary Purchase: How It Works

Buying a property from a family member at a reduced price is known as a family concessionary purchase, and one of the main benefits is the creation of gifted equity. For many buyers, this is the key that makes purchasing possible without a traditional cash deposit. But how does gifted equity actually work, and what do lenders expect during the process? This guide explains everything you need to know about gifted equity on a family concessionary purchase, including documentation, valuation, lender rules, and legal requirements.

This article provides general information only and does not offer regulated mortgage advice.

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What Is Gifted Equity?

Gifted equity is the difference between a property’s market value and the discounted price agreed during a family concessionary purchase.

Example

• Market value: £300,000
• Sale price: £240,000
• Gifted equity: £60,000

This £60,000 acts as the buyer’s equity in the property and may count as a mortgage deposit depending on lender criteria.

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How Gifted Equity Works in a Family Concessionary Purchase

In a traditional purchase, the buyer must provide a cash deposit.
In a concessionary purchase:

• The seller (a family member) reduces the price
• The discount is treated as a gift
• The buyer may not need any cash deposit

Lenders treat the gifted equity as if the buyer is starting the mortgage with built-in equity.

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Why Lenders Accept Gifted Equity

Many lenders accept gifted equity because:

• The discount is verified through valuation
• The property is worth more than the amount borrowed
• The family relationship is easy to confirm
• The lender’s risk reduces due to lower LTV

Gifted equity is a widely recognised deposit alternative, though each lender sets its own rules.

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How Loan-to-Value (LTV) Is Calculated

A key aspect of gifted equity on a family concessionary purchase is understanding how LTV works.

Lenders usually calculate LTV using the market value, not the discounted price.

Example

• Market value: £300,000
• Borrowing: £240,000
• LTV = 80%

Even though you are borrowing 100% of the sale price, the lender views the case as an 80% LTV mortgage.

This can help unlock more favourable mortgage products.

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When Gifted Equity Can Serve as the Full Deposit

You may not need a cash deposit if:

• The discount equals or exceeds the lender’s minimum deposit requirement
• The valuation confirms the market value
• The gifted equity is unconditional
• The lender accepts concessionary purchases

Example

• Required deposit: 10%
• Gifted equity: 20%

Deposit requirement is fully met.

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When Gifted Equity Does Not Cover the Deposit

There are situations where a cash contribution may still be required:

1. Small Discount

If the gifted equity is less than the lender’s minimum deposit percentage.

2. Low Valuation

If the valuer assesses the property at a lower market value, the gifted equity reduces.

3. Borrower Has Recent Adverse Credit

Some lenders increase deposit requirements for higher-risk applications.

4. Lender Does Not Accept Gifted Equity Alone

Some lenders require at least part of the deposit to come from the buyer.

Example

• Gifted equity: 5%
• Required minimum deposit: 10%
• Buyer must provide the remaining 5% in cash.

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Documentation Required for Gifted Equity

Lenders and solicitors require specific documents to confirm the arrangement.

1. Gifted Equity Letter

This must include:

• Seller’s confirmation of the discount
• Statement that no repayment is required
• Amount of equity gifted
• Names and relationship of buyer and seller
• Confirmation the seller will not retain interest in the property

2. Valuation Report

Confirms:

• Market value
• Property condition
• Genuine discount

3. Proof of Relationship

Some lenders require documents confirming the family connection.

4. Standard Mortgage Documentation

Including ID, income evidence, and bank statements.

Solicitors also confirm the seller legally owns the property and the title is suitable for lending.

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Stamp Duty and Gifted Equity

Many buyers wonder whether gifted equity affects Stamp Duty.

Key Point

Stamp Duty is based on the purchase price, not the market value.

This means:

• If the discounted price is below SDLT thresholds, no tax may be due
• First-time buyer relief may still apply
• Additional property surcharges still apply if relevant

Gifted equity does not reduce Stamp Duty further, but discounted prices may naturally fall into lower bands.

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Legal Checks on Gifted Equity

Solicitors carry out several important checks, including:

• Ownership verification
• Ensuring gift is unconditional
• Confirming no private repayment agreements exist
• Full AML checks on both parties
• Reviewing searches and enquiries

These checks protect both lender and buyer by ensuring the discount is genuine.

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Pros of Using Gifted Equity in a Family Concessionary Purchase

1. May Eliminate the Need for a Cash Deposit

Great for buyers with limited savings.

2. Lower LTV Improves Mortgage Options

Potentially more accessible rates and products.

3. Faster Sale Process

No estate agent, fewer parties involved.

4. Immediate Equity Position

The buyer starts with a stronger financial footing.

5. Clear Documentation Trail

Gifted equity arrangements are well-understood by lenders and solicitors.

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Considerations and Limitations

• Not all lenders accept gifted equity from family members
• Some require additional cash deposits
• Valuation outcomes may reduce usable equity
• A clear family relationship must be demonstrated
• Property condition may affect lending options
• Stamp Duty still applies based on sale price

Understanding these considerations helps manage expectations.

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Example Scenarios

Scenario 1: Full Deposit Covered by Gifted Equity

• Market value: £280,000
• Sale price: £220,000
• Gifted equity: £60,000
• Required deposit: 10% (£28,000)

Gifted equity exceeds the requirement.

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Scenario 2: Gifted Equity Only Covers Part of Deposit

• Gifted equity: £15,000
• Required deposit: £30,000

Buyer needs £15,000 cash.

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Scenario 3: Low Valuation Reduces Gifted Equity

• Expected market value: £300,000
• Valuation: £270,000
• Sale price: £240,000
• Gifted equity: £30,000 (lower than expected)

Deposit requirement may not be fully met.

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Tips for a Smooth Gifted Equity Process

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

• Ensuring the seller understands gift documentation
• Preparing ID and family relationship evidence early
• Reviewing credit files before applying
• Keeping bank statements stable
• Ensuring the property is ready for valuation

Good organisation helps reduce delays.

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Summary

Understanding gifted equity on a family concessionary purchase is essential for buyers considering a discounted sale from a relative. Gifted equity can reduce or remove the need for a cash deposit, help improve LTV, and streamline the purchase process. Lenders, solicitors, and valuers all follow structured checks to confirm the gift is genuine, the property is valued accurately, and the transaction meets mortgage and legal requirements.

This article provides general information only. For tailored guidance, regulated mortgage advice should be sought.