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30/11/2017

Right to Buy Scheme

Recently I have been seeing people who are interested in investigating Right to Buy. A lot of mortgage brokers seem to run away from this area as they feel it is too complex. I thought I would try to simplify the process for you so that you can check whether you are eligible.

This scheme was introduced by the Conservative Government within the Housing Act 1980 and the next main update was made in 2015. Council tenants are eligible for a discount on the value of the council property (house or flat) they wish to purchase. You are eligible for a discount if you have been a council tenant for 3 years or more (up to a maximum of 30 years). Please note that this discount is based on the length of time you have been a council tenant, not the length of time you have lived in a council property.

Can I get a joint mortgage?

Based on affordability – the buyer is able to get a mortgage for the remainder of the outstanding balance. If you are the only tenant on the rent book you will have to be party to the mortgage; however, you can obtain a joint mortgage with a spouse/civil partner or a member of the family but it has to be their main place of residence. Furthermore, the affordability of the mortgage will be based on all parties involved, not just the tenant named on the rent book.

Many lenders who accept Right to Buy mortgages will mortgage 100% of the discounted amount; therefore, no further deposit is required to secure the mortgage.

Potential problems………

If the buyer wishes to sell the property within 10 years of buying, they must first offer it to the original landlord i.e. council. If the landlord does not agree to buy back the property within 8 weeks of being asked, the owner is free to sell it on the open market. However, any right to buy buyer will have to pay back some or all of the discount if they sell the property within 5 years of buying it; if sold after 5 years the buyer does not have to pay back any discount.

So, you’ve worked out that you are eligible – how much discount do you think you can get?

If you wish to purchase a house and have been a council tenant for 3 years you should be eligible for a 35% discount. You should also receive a discount of 35% if you have been a tenant for 4 and 5 years. From year 6 the tenant should receive a further 1% discount per year (up to a maximum of 70%); i.e., if you have been a council tenant for 13 years you would receive a total discount of 43% from the value of the property.

If you wish to purchase a flat you should receive a 50% discount after 3 years. The discount will also be 50% after 4 and 5 years. From year 6 you get an additional 2% discount per year (up to a maximum of 70%); i.e. if you have been a tenant for 13 years and want to purchase a flat you would receive a total discount of 66% from the value of the property.

There’s always a catch

The maximum amount of discount is £77,900 in England and £104,900 in London Boroughs.

And don’t forget affordability is key for mortgages today so comprehensive evidence of affordability is required such as income and expenditure details which will need to be disclosed to the lender

I hope this has provided you with a better idea of the rules concerning right to buy. The scheme is still available to those eligible so if you have a friend or family member who may be interested in investigating this area, please get in touch.

Your home may be repossessed if you do not keep up repayments on your mortgage.

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