Table of Contents
If you’re an Australian living overseas, there’s a good chance the family home will come up for sale before you’re back for good. As parents or grandparents downsize or move into aged care, many families would rather keep the home in the family than sell it to a stranger, and often the older generation will sell to you below market value to help you in. When a property sells to a relative for less than it’s worth, that’s a favourable purchase: the seller is effectively gifting you the difference in equity. This guide covers how a favourable purchase works, how that equity can stand in for your deposit, what lenders and the tax office look for, and where an expat’s loan-to-value ratio (LVR) is capped.
What a favourable purchase is
A favourable purchase, which some lenders call a concessionary purchase, is simply buying a property from family for less than its market value. Say the home is valued at $500,000 and your parents agree to sell it to you for $400,000. They haven’t handed you cash, but they’ve gifted you $100,000 of equity: the gap between what the property is worth and what you pay for it. That built-in equity is what makes a family purchase different from an ordinary sale, because with the right lender it can do the job a cash deposit normally does.
Turning gifted equity into your deposit
Whether that equity actually covers your deposit comes down to lender policy, and policy varies widely. Take David and Sue buying a family home valued at $500,000 for $400,000, with $100,000 in gifted equity:
- One lender funds the full $400,000 purchase price plus stamp duty and legal costs, so David and Sue contribute nothing in cash
- Another lends 95% of the price, $380,000, so they need a $20,000 deposit plus costs
- A third gives no credit for the gifted equity at all and wants a 20% deposit, $80,000
Same purchase, three very different outcomes. Which lender you take the deal to decides whether you put in a deposit at all, so this is a case where going to the right lender first genuinely changes the numbers.
What lenders require to approve it
A favourable purchase is a standard part of lending, but lenders will want the arrangement documented properly before they give you credit for the gifted equity:
- A bank valuation at full market value, which is what the equity gift is measured against
- A contract of sale that shows the price and the family relationship, so the discount is on the record
- A gift or benevolent-vendor letter, usually a statutory declaration from the seller confirming the discount is a genuine gift and not a loan to be repaid
- Independent legal advice for both sides, which most lenders and conveyancers expect on a family transfer
Get these in order early. A missing gift letter or a valuation that comes in low is the usual reason a favourable purchase stalls.
Expat LVR caps on favourable purchases
Here’s the catch that’s specific to expats. An Australian citizen living and working abroad can absolutely buy the family home this way, but on a favourable purchase the loan is capped at 80% of the higher valuation, not of the price you pay.
| Purchase type (expat buyer) | Loan is based on | Typical maximum |
|---|---|---|
| Favourable purchase from family | The higher market valuation | Up to 80% of the valuation |
| Arm’s-length purchase from an unrelated seller | Purchase price | Up to 95% (5% deposit) |
In the $500,000 example, 80% of the valuation is around $400,000. If you agree to pay $400,000, that’s fully funded and you may need no cash deposit, only costs. If the price is higher than $400,000, you cover the difference yourself. This 80% cap applies only to expat favourable purchases: buy at arm’s length from an unrelated seller and an expat can still borrow up to 95%, so only a 5% deposit is needed.
Stamp duty still uses market value
Stamp duty on a family transfer is generally assessed on the property’s market value, not the discounted price you pay. In the example above, duty is worked out on the $500,000 valuation, not the $400,000 you hand over. Factor that into your costs so it doesn’t catch you short at settlement.
Rates and any concessions differ by state and territory, and a foreign-purchaser surcharge applies in most states, though as an Australian citizen you generally won’t be a foreign person for that purpose (see FIRB below). Get state-specific duty advice as part of the purchase, because it’s assessed on the full value of what you’re buying.
FIRB when you buy from family
If you’re an Australian citizen, you’re not a foreign person under the Foreign Investment Review Board (FIRB) rules, so no FIRB approval or fee applies, and that holds no matter how long you’ve lived overseas or where you’re currently based. Buying the family home from abroad as a citizen is, on the FIRB question, the same as buying it while living in Australia.
Permanent residents living overseas should check their position rather than assume. A PR who is no longer ordinarily resident in Australia can be treated as a temporary resident for FIRB, which changes what’s required. Our guide to FIRB approvals sets out who needs it.
How MAP funds a family purchase
The whole game with a favourable purchase is knowing which lenders give full credit for the gifted equity and which don’t, then structuring the application so the equity does the work of a deposit. That’s the Match step in the way we work: Match, Apply, Purchase. We match your situation to the lenders whose policy actually fits a family transfer, so you apply once, to the right lender, with the strongest case. Our service costs you nothing, because the lender pays us, not you.
If you’re weighing up buying from family, it’s worth getting your deposit and borrowing power mapped out first, and our guide to Australian expat home loans covers how lenders read your overseas income. When you’re ready, we’ll tell you exactly where you stand.
Common questions about favourable purchases
What is a favourable purchase?
A favourable purchase is when a family member sells you a property for less than its market value. The difference between the valuation and the price you pay is gifted equity, which some lenders will count towards your deposit.
Can I buy my parents’ house below market value?
Yes. Parents or grandparents can sell to you under market value, and lenders treat the gap as gifted equity. The property is still valued at market, so plan for stamp duty and, for expats, an LVR based on that valuation.
Can gifted equity be my deposit?
With the right lender, yes. Some lenders lend against the full valuation, so the built-in equity covers your deposit and you contribute little or no cash. Others lend only against the price paid, so which lender you choose matters.
Do I still need FIRB approval to buy from family?
If you’re an Australian citizen you’re not a foreign person, so no FIRB approval or fee applies, even while you live overseas. Permanent residents living abroad should check their position, as they can be treated as temporary residents.
Is stamp duty charged on market value or the price paid?
Stamp duty on a family transfer is generally assessed on the property’s market value, not the discounted price you pay. Budget duty against the valuation, and get advice for your state or territory.
This article is general information, not personal credit, tax, or property advice. Lender policy, stamp duty, and FIRB rules vary by situation and by state, and can change. Confirm the detail with the relevant authority and speak to MAP Home Loans about your finance before you act.
