A Guide To Buying A House Below Market Value with a Mortgage

Buying a house below market value can be an exciting opportunity. 

Whether it’s through family, a quick sale, or an auction, getting a property for less than its market value could be a great way to get on the property ladder or expand your portfolio. 

But, before you jump in, there are some important things you need to know.

From finding the right lender to understanding the tax rules, buying a bargain home isn’t always as simple as buying a typical property.

This guide will walk you through everything you need to know to make it work for you, without the stress. 

Let’s explore the ins and outs of buying a house below market value and securing a mortgage in the UK.

Can You Get a Mortgage to Buy a House Below Market Value?

Absolutely! Buying a house with a mortgage when the property is priced below its market value is not only possible, but it’s also a pretty common practice in the UK. 

Imagine a house going for 10%, 20%, or even 30% less than similar properties—it’s not magic, it’s just circumstances. 

Perhaps it’s an auction deal, or a family member wants to help you out. Either way, if the stars align, you could find yourself scoring a fantastic deal.

Now, the key to making this work is finding the right lender. 

Lenders are usually open to below-market-value transactions, but they might dig a little deeper before giving you the green light. 

Why? Well, they need to ensure there’s no funny business, like fraud or underhanded deals. But as long as you meet their affordability and eligibility criteria, you should be good to go.

The fun part is that some lenders base the loan-to-value (LTV) ratio on the market price instead of the purchase price. 

That means you could start with more equity, which is just a fancy way of saying you’re off to a strong start with a solid mortgage deal.

Why Would a House Be Sold Below Market Value?

You might wonder why anyone would sell a house for less than it’s worth. 

There are plenty of reasons, and no, it’s not because the house is haunted (at least, we hope not!). 

Here are some common scenarios:

• Family Transactions. One of the most popular reasons for selling below market value is when it involves family. Buying a house from a family member in the UK often means skipping the estate agent fees and negotiating a friendly price.
• Quick Sale. Financial difficulties or the need to relocate fast can lead to a seller putting their property up for a quick, no-hassle sale at a discounted price.
• Auction Deals. Buying properties at auction is a great way to find below-market-value deals. But keep in mind, those homes might need a bit of elbow grease to bring them up to scratch.

In all these cases, buying a house below market value from family or otherwise can be a win-win—you get a good price, and the seller achieves their goals.

What Are the Advantages of Buying Below Market Value?

So, why go through all this hassle? Well, there are some juicy advantages to buying a house below market value. 

Let’s break them down:

• Lower Borrowing Amount. If you’re buying at a discount, you’re borrowing less from the bank. Less borrowing equals less to repay—happy days!
• Instant Equity. If you get a property for, say, 20% less than its market value, you’ve already got some equity built in. Equity is like your stake in the house, and more equity means better mortgage rates.
• Reduced Fees. Buying from a family member can mean fewer costs, such as estate agent fees. It’s a friendly transaction, which can make the whole process much easier on your bank balance.

Are There Any Risks Involved?

Before you get too carried away, let’s chat about the risks. 

Buying a house from a family member in the UK or any below-market-value property has its own set of potential pitfalls:

• Family Tensions. Mixing family and finances isn’t always smooth sailing. If things go wrong, it can lead to awkward Sunday lunches.
• Tax Implications. The tax implications of selling a house below market value in the UK can be a bit tricky. If you’re buying from family, it could be considered a gift, which may have inheritance tax (IHT) implications down the line.
• Lender Scrutiny. Because it’s not a typical market transaction, lenders may be extra cautious. They’ll want to make sure everything’s above board and that there’s no funny business involved.

What Are the Tax Implications of Selling a House Below Market Value?

Taxes—we can’t avoid it, so we might as well understand it. Here’s a breakdown of the main taxes to consider:

Capital Gains Tax (CGT)

If the house isn’t the seller’s main residence, there might be CGT to pay. This tax is calculated based on the market value of the property, not the sale price.

For example, if Auntie Joy sells you her holiday home—valued at £350,000—for £300,000, the CGT is based on the gain from the original purchase price. 

If she initially bought the property for £200,000, the capital gain is £150,000 (market value minus original purchase price).

For the 2024/25 tax year, CGT on residential property is 18% for basic-rate taxpayers and 24% for higher-rate taxpayers. 

So, if Auntie Joy is in the higher tax band, her potential CGT bill could reach £36,000 (24% of £150,000), subject to any CGT allowances she may qualify for.

Inheritance Tax (IHT)

If Auntie Joy decides to sell you her holiday home at a discount, the difference between the market value and sale price might be treated as a gift.

This is where Inheritance Tax (IHT) could come in if Auntie Joy passes away within seven years of making this gift.

Under the Potentially Exempt Transfer (PET) rule, gifts like this may be subject to IHT. 

The tax rate starts at 40% if she passes within three years, gradually reducing to 0% after seven years. 

So, if she passes away four years after the gift, a reduced IHT rate would apply. 

Consulting a tax advisor can be a smart move here to help you plan and potentially minimise any IHT that could arise.

Stamp Duty

Stamp Duty Land Tax (SDLT) is paid on the purchase price, not the market value. So, buying a house below market value from the family could mean lower stamp duty. 

For primary residences, the rates start at 0% for purchases up to £250,000, 5% for amounts between £250,001 and £925,000, and so on. 

Rates are higher for second homes and vary for first-time buyers, so it’s essential to check the SDLT rates that apply to your purchase.

To see exactly how much you might owe, try using our Stamp Duty Calculator to get a quick estimate tailored to your situation.

How Does Buying a House from Family Work?

Buying a house from a family member can be an amazing opportunity. You might be familiar with the property, and there’s the bonus of flexibility in negotiations. 

But it’s not without its own set of hoops to jump through.

Lenders often treat these as concessionary purchases, which means they might allow the difference between the sale and market price to be used as your deposit. This can reduce the cash you need upfront—sounds ideal, right?  

But not all lenders will allow this. Some may still ask for a standard deposit or have specific rules about the family relationship involved.

Plus, there’s the emotional side of things. Selling and buying a house between family members can get complicated if expectations aren’t clearly set from the start. 

It’s a good idea to get everything in writing, even with family, to avoid any disputes later on.

What Role Do Lenders and Brokers Play?

Not all lenders are keen on below-market-value deals, especially between family members. This is where a specialist broker can make a difference. 

A good broker knows which lenders are most likely to approve these types of mortgages and can help you meet their specific requirements.

They’ll also guide you on eligibility criteria, such as:

• Loan-to-Value (LTV) Ratios. Some lenders base the LTV on the property’s market value, while others use the purchase price.
• Deposit Rules. You might need a smaller deposit, or it could be covered by the difference between market value and sale price—but you’ll need lender approval to confirm this.
• Seller Restrictions. Certain lenders have unique rules, like requiring the seller to move out or setting an age limit for the seller.

Working with a broker can save you time and help you find the right lender for your situation.

The Bottom Line

Buying a house below market value—whether it’s from a family member or at an auction—can help you save money, build wealth, and get on the property ladder faster. 

But there are a few things to keep in mind, like taxes and lender rules.

If you’re ready to go for it, working with a broker who knows these deals is a good idea. 

They’ll help you find the right mortgage and guide you through each step, making things easier. 

Good advice can make all the difference. 😀

Get in touch with us, and we’ll connect you with a mortgage broker who can help you get the best deal on a below-market-value home.