Right to Buy explained

by Leeds Building Society

Warning: THE MORTGAGED PROPERTY (WHICH MAY BE YOUR HOME) MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE

What is Right to Buy?

Right to Buy is a government scheme that lets you buy your home for a discount if you rent it from the council or a housing association (if your housing association participates in Right to Buy).

You can get special mortgages for Right to Buy. In some cases, you won’t need to save up a deposit to get a Right to Buy mortgage (although there may be other fees you have to pay up front).

Right to Buy is only available in England and Northern Ireland. It stopped being available in Scotland on 1st August 2016, and it's likely that it will stop being available in Wales in 2017.

Who’s eligible for Right to Buy?

To be eligible for Right to Buy, you need to:

  • Live in a property that you rent from the council or a housing association (the housing association has to participate in Right to Buy; not all do) – and that property has to be your main home
  • Have rented from the council or a housing association for at least three years (doesn’t have to be three consecutive years)
  • Not have any outstanding debts with the relevant council or housing association
  • Be a secure tenant (that means you have a lifetime tenancy, and the council can only evict you if they have a legal reason)

The property you buy also has to be self-contained (that means it has all its own facilities, rather than a shared bathroom or kitchen).

There are also limits to the maximum discount you can get through Right to Buy:

  • £104,999 in London
  • £78,600 elsewhere in England
  • £24,000 in Northern Ireland

Getting a Right to Buy mortgage

You can get a standard residential mortgage to buy a property through Right to Buy, but some lenders offer specific Right to Buy mortgages. These mortgage products often ask for much lower deposits than normal residential mortgages – in some cases, lenders will offer you the full discount price of the property.

Despite the relative affordability of Right to Buy mortgages, don’t forget that there are still a number of other costs you have to pay when buying your first home. Make sure you factor these costs in when thinking about whether or not you can afford to buy a home through Right to Buy.

Here’s the process:

  1. Check that you’re eligible. The criteria are listed earlier in this article.
  2. Look at the costs and work out what you can afford.
  3. Download and fill in a Right to Buy application form (RTB1). You can also ask for a paper copy from your landlord. Once you’ve filled in the form, you need to print it (if you downloaded the form online), sign it and send it to your landlord.
  4. Within four weeks, your landlord should reply to let you know if you’re eligible for Right to Buy (they have eight weeks if you’ve rented from them for less than three years).
  5. If you’re eligible, your landlord will send an offer notice. They have eight weeks to do this if you rent a leasehold property and 12 weeks if you rent a freehold property. This offer will tell you how much the property is valued at, how much of a discount you’ll get, any known structural problems with the property, and the total price you’ll pay.
  6. You then have 12 weeks to accept the offer.

After this, the process is the same as any other property purchase. You need to get on with the things all first time buyers have to do.

Costs of Right to Buy

Like any property purchase, potential Right to Buy borrowers need to consider a number of costs and fees:

Some of the fees you might have to pay include:

  • Mortgage deposit (if you need to pay one)
  • Mortgage fees
  • Survey costs
  • Valuations
  • Conveyancing fees
  • Renovations you might want to make
  • Stamp duty
  • Home insurance

There might be other costs not covered in that list, too. Make sure you speak to your lender to get a clearer idea of what you'll have to pay.

Selling a Right to Buy property

If you sell your property within five years of buying it, you’ll have to pay back some (or all) of the discount to the council or housing association. This works on a sliding scale:

  • If you sell within the first year, you pay back 100% of the discount
  • Second year: 80%
  • Third year: 60%
  • Fourth year: 40%
  • Fifth year: 20%

If you sell your home within 10 years of buying it, you have to first offer it back to your old landlord, or another social landlord in the area. They have the option of buying it off you for market value. This is called “right of first refusal”. If they don’t want it, you can sell it on the free market – just like any other property.

After 10 years, you can sell it on the free market straight away.

Right to Buy joint application

You can make a joint application for a Right to Buy mortgage, but you’re only allowed to make a joint application with certain people.

If there’s anyone else on your tenancy agreement, you can make a joint Right to Buy application with them.

You can also make a joint Right to Buy application with your husband, wife or civil partner, even if you haven’t lived together in the property you currently rent from the council.

You can make a joint application with up to three family members. To make a joint application with a family member, they need to have lived in your home for the last 12 months, and it has to be their main home. However, they don’t have to be on the tenancy agreement.

Repaying a Right to Buy discount

Things get a bit complicated here.

If you have to repay some of your discount, it’s based on the open market value of the property when you come to sell it.

Let’s say the value of the property when you bought it from the council was £150,000. Because of the Right to Buy discount, you got a discount of £75,000, which is 50% of the property price.

If you want to sell it within five years of buying it, you'll have to pay back some of the discount.

Let's assume that the market value of your property is now £200,000. This means you have to pay back 50% of £200,000 (£100,000) when you sell the property.

But things can get a bit more complicated than that, depending on when you sell it. This is because the proportion of the discount you have to pay back goes down every year.

So, sticking with the earlier example: if you sell your house within a year of buying it, you would pay back 100% of 50% of £200,000 – which is £100,000. But if you sold it four years after buying it, you’d pay back 40% of 50% of £200,000, which is £40,000.

Your local council or housing association can help you work out how much of the discount you'll have to repay, but it's worth understanding the likely repayment before you commit to a property.

Check your credit score

Like any other first time buyer, your credit score becomes really important when you apply for a mortgage. Lenders look at whether you’ve been able to repay credit in the past as an indicator of whether you’re likely to fall behind on your mortgage payments.

There are a lot of factors that influence your credit score, including things like whether you’ve paid back loans on time and whether you’ve made full credit card repayments.

You can find out your credit score from companies like Experian, Equifax, CallCredit and Clearscore.

Right to Buy mortgage deposits

One of the main benefits of Right to Buy mortgages is that they often require a lower deposit than standard residential mortgages. In some cases, lenders will offer you the full discounted cost of your property.

Some lenders will offer to loan you the full purchase price plus a bit extra for home improvements. This will normally be represented as a % of the value of the property (known as the loan to value ratio). For example, your lender might go up to 75% of the value of the property, with the excess being intended for making home improvements.

Right to Buy pros and cons

The main benefits of Right to Buy are a smaller deposit (sometimes you won't need to save up a mortgage deposit at all, although there may be other mortgage fees to pay) and a significantly discounted purchase price.

The cons are the need to pay back some of the discount if you leave within five years, and the need to give right of first refusal to the council in some circumstances. So it’s not necessarily the most convenient or flexible way to own a home, and it’s perhaps more suited to you if you’re planning to stay in the property for some time.

The criteria for Right to Buy eligibility is quite specific, too, so it’s only available to certain people. This separates it from many of the other government schemes for first time buyers, some of which are a little broader in terms of eligibility.

Right to Buy and housing benefit

If you currently receive housing benefits to help you with your rent, you need to bear in mind that housing benefits don’t contribute towards your mortgage payments. If you buy a home (either through Right to Buy or any other means) you won’t be eligible for housing benefit anymore.

You need to think carefully about whether you can afford to buy your home. Loss of housing benefit is one of the things you need to factor in.

 

This guide is intended as a summary only and does not constitute legal or financial advice given by Leeds Building Society. No reliance should be placed on this guide. We recommend that you seek independent legal advice and/or financial advice if you have any questions or queries.