Right To Buy Explained
While the housing market (and jumping on the property ladder) is no doubt a tough cookie to crack, we are lucky that here in the UK there are programmes available to assist those wanting to buy a home of their own, including those of us on lower incomes.
One opportunity some of our clients are utilising is the Government’s Right to Buy scheme. The Right to Buy scheme is designed to help council/public sector housing tenants to buy their homes, often with a sizeable discount. This discount can sometimes be used against the upfront deposit, which means the buyer could end up not paying a deposit at all.
Sounds great, right?
How does the Right to Buy scheme work?
People living in public sector housing - belonging to a housing association, local council or other government department - may be able to utilise the Right to Buy scheme.
The scheme is designed to encourage tenants to buy their home, by offering them a discount. The size of your discount could depend on a number of factors which include: the length of time you’ve spent in the property, the type of property (e.g. flat or house) and the property’s value.
For example, if you live in a public sector house (not a flat), your discount should be around 35%. If you live in a flat, that discount could be as much as 50%. Each year, the discount will go up.
The maximum discount you could expect to get in London is £103,000 and, for the rest of the country, £77,900.
Who can use the Right To Buy scheme?
To qualify for the scheme, you need to have been a public sector tenant for three to five years. You don’t need to have been living in the same property for that entire length of time nor does the period need to be continuous. You should be eligible for the scheme as long as you have accrued the correct number of years in public sector housing throughout your life.
Can I buy the property with somebody else?
If you’re joint tenants with someone on the agreement, or if you’ve lived with somebody for at least 12 months, then you both should be eligible for a right to buy discount and can purchase the property together. This is called joint ownership.
Right to Buy mortgages
Even with the discount, it’s likely you’ll still need to take out a mortgage. Many lenders will allow you to use the right to buy discount as a mortgage deposit, meaning that in some cases you’ll be able to borrow enough to purchase the house without needing to offer any money up front. However, this is not always the case, so you should consult a mortgage provider or broker to see what options are available to you.
The pros and cons of Right to Buy
The Right to Buy scheme has a number of great pros, including:
• It provides an affordable option for people who otherwise may never be able to purchase a home of their own
• After years of paying rent, it gives tenants something to show for that financial commitment
• It will help out future generations with regards to housing, as you will be able to hand your home down to your children one day
• It gives tenants a choice about their housing and long-term living arrangements
• It helps build stronger communities. People who own their homes have been shown to display much more pride in it and the community in which they live.
Some cons that have been identified with the Right to Buy scheme include:
• It creates council housing shortgages, as many homes are being sold, and not enough new ones are being built to house people who need public sector accommodation
• Private property companies have profited from the policy in a scam that involves luring tenants into buying their council homes with the offer of cash incentives. Under the scam, the former tenants move out as soon as they have bought their homes to allow it to be let to someone else at market rates. Anyone considering a property purchase should be wary of such scams and always seek expert advice before deciding on anything
• Some have said that the Right to Buy scheme offers a short-term solution to a long-term problem. In general, the affordability of housing is an issue that needs to be addressed by our government.
Selling a Right to Buy property
If you sell within ten years, you will be obliged to offer the property back to the original landlord. Only if they decline can you then put the property for sale on the open market.
As such, like any decision as significant as buying a house, you must be as sure as possible that this is the right decision for you and your family’s future.
A Right to Buy success story
On the Money Saving Expert forum, user Steve writes:
"Go for it......
“Completed on ours last Monday, took 5 months start to finish. To be kind i will say our council were methodical. Every visit was in '2 weeks, and then that decision took '2 weeks'.
On the council side it went, RTB1 application, RTB2 conformation, boundary survey (2mins), valuation, valuation price, Energy performance survey.
Market value £135000, minus £10000 for improvements we had done, purchase price £125000, minus 52% discount, we got it for £60000.
No deposit reqd by Nationwide as they use the discount.
As stated above get as many repairs done as you can, once RTB2 is returned by you, you will be on 'water and air tight repairs' only, including gas/heating and electrical repair.
Our mortgage (we fixed in for 5 years) is £2 a month cheaper than our rent. The rent goes up again April.
While Right to Buy may not be right for everybody, it is certainly a promising option for many in today’s increasingly difficult property market.
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Content correct at time of publication.