A favourable purchase — also known as a related party transaction — is when a property is sold for less than market value, typically between family members. For example, parents may sell their home to a child at a discounted price to help them enter the property market sooner.
These arrangements are becoming more common as property prices rise and younger buyers seek support from relatives.
Do You Still Pay Stamp Duty on a Favourable Purchase?
Yes. In most Australian states, stamp duty is calculated based on the property’s full market value, even if the purchase price is lower. So even if you’re only paying $500,000 for a home worth $700,000, your stamp duty will still be calculated on $700,000.
It’s important to check the exact rules in your state or territory, as some thresholds and concessions may vary.
How Do Lenders Treat a Favourable Purchase?
Most lenders assess the loan-to-value ratio (LVR) based on the independent market value, not the contract price. The difference between the value and the purchase price is treated as a gift of equity — and may count as your deposit.
For example, if the home is worth $800,000 and you’re buying it for $640,000 (20% less), many lenders will consider that 20% discount as your full deposit, potentially helping you avoid Lenders Mortgage Insurance (LMI).
However, lenders usually require:
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A full property valuation
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Evidence of the relationship between buyer and seller
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A signed gift letter (if applicable)
Risks to Watch Out For
While a favourable purchase can be a win-win, there are a few important risks to keep in mind:
Disputes between family members: Emotional or financial misunderstandings can cause tension.
Tax consequences: The seller may face capital gains tax if the property isn’t their primary residence.
Loan approval: Not all lenders are comfortable with related party transactions, especially if the equity gift isn’t well documented.
Overlooking due diligence: Just because it’s a family sale doesn’t mean you should skip building inspections or legal checks.
Can You Get a Loan with No Deposit in a Favourable Purchase?
Yes — this is one of the biggest advantages of a favourable purchase. If the discount is large enough (generally 15–20%), that equity can be treated as your deposit. In many cases, this means you can secure a home loan with no upfront cash deposit and still avoid LMI.
However, lenders will still assess your:
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Credit score
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Income and employment stability
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Debt-to-income ratio
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Overall borrowing capacity
The gifted equity replaces the deposit but doesn’t waive other lending criteria.
