Right To Buy Mortgages
Right to Buy Mortgages for council tenants
Right to Buy was a policy introduced in the early 1980’s, by the Conservative government, led by the late Margaret Thatcher.
Apply for a right to buy mortgage
Right to Buy gives council tenants in England and Wales, who have a minimum of 5 years social tenancy, the opportunity for homeownership and to purchase their council property. The 5 years tenancy does not need to be consecutive i.e. it could be 2 years as a council tenant, 2 years as a private tenant and then another 3 years as a council tenant, it just needs to total 5 years or more.
To simplify the buying process, Right to Buy is available to tenants even if they do not have a deposit. The government offers discounts from the standard market value of a property, which most mortgage lenders view as the equivalent of a deposit. Right to Buy discounts can vary depending on property type, area and amount of years as a council tenant but the current maximums in most areas of England and Wales are set at GBP 75,000 or 60% of the properties valuation (whichever is lower). This can increase to 70% for flats and the maximum discount in London is GBP 100,000.
Standard or normal market value of a property: GBP 200,000
Maximum discount (equivalent to a deposit): GBP 100,000
Purchase price: GBP 100,000
*Additional borrowing is also available. This can be used to upgrade the property or for a variety of other reasons. Should Right to Buy purchasers sell the purchased property within 5 years of ownership, they will be required to repay a pro-rata amount of the discount. For example, if the discount is GBP 100,000 and the ex-tenant sells the property 1 full year after the date of purchase, they will be required to repay from the sale, 80% or 4/5 of the discount, i.e. GBP 80,000. If the ex-tenant sells after 2 full years, they would be required to repay 60% or 3/5 of the discount, i.e. GBP 60,000 etc.
The first step would be to contact a specialist mortgage broker, such as UK Property Finance Ltd, who will help throughout the process. The broker will ensure Right to Buy eligibility, produce illustrations highlighting the availability and cost of mortgages and then help apply to the council. The council normally take approximately 4 weeks to review the documentation before they instruct a local surveyor to value the property. The surveyor returns the valuation report to the council who will then produce a formal Right to Buy offer. This process normally takes another 4 to 8 weeks and the council tenant then has 12 weeks from the issue date to take up the offer or it is potentially lost. Due to the cost involved and to deter timewasters, councils can have limits on the amount of Right to Buy offers per tenant so in effect if you don’t take up the offer you could lose this or any future Right to Buy opportunity.
Almost 2 million households have taken advantage of the Right to Buy Scheme since its introduction and with substantial discounts and historically low mortgage rates available, ex-council tenants are in many cases paying much less per month on mortgage payments than they were in rent. At the same time the ex-tenant is ensuring a more secure future for themselves. As part of the tenancy agreement, a council tenant can be given notice to leave the property at any time but following purchase and provided mortgage payments are made as required by the mortgage lender, an ex-tenant can never be asked to leave the property. Purchasing the property also means that any added value improvements made to the property or normal market increases, will not benefit the council but will go to the ex-tenant who is now the owner. Many ex-council tenants see Right to Buy as a perfect opportunity to leave an inheritance for their children or grandchildren.
The Right to Buy policy has been credited with making improvements on many council estates which have changed unrecognisably. Large swathes of private ownership within the estates has meant that significant property and area improvements have been made by the new owners who instead of being tenants, now hold a financial stake.
Some bystanders however see Right to Buy as a counteractive system. Growing waiting lists for social housing have become much worse as large numbers of council properties continue to be sold and with councils now building far less properties than they are selling this situation will only get worse. Some critics even negatively credit the Right to Buy policy with in some part creating the property bubble of the early 90’s which has made it even more difficult for first time buyers to join the property ladder and they also believe the Right to Buy policy is unfair on first time buyers and private tenants who do not get such a helping hand into property ownership and need to save a deposit before they can get the chance to move onto the housing ladder.