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Guide to Right to Buy Mortgages

If you’re a council tenant and you have dreams of owning your own home, Right to Buy could be for you. This government scheme was launched in 1980 and has helped hundreds of thousands of people get on the property ladder.

This guide will explain how the Right to Buy scheme works and how it could help make you a home owner.

Please note: The information in this article is subject to changes in government legislation. Please seek financial advice before undertaking a financial commitment of this type.

What is Right to Buy?

Right to Buy is a well-established government scheme that offers a discount to council tenants who wish to purchase their council property. Council tenants who are eligible can receive a maximum of £103,900 for houses in London and £77,900 across the rest of England.

Who is Eligible for Right to Buy?

• Those who have been a secured public sector tenant for at least three years.
• Those who have a good credit rating and a low level of outstanding debt (read our Guide to Improving your Credit Rating for some tips). 
• The council house must be your main place of residence and you must not own another property.
• Those who live in a council property, or ex-council property which was sold on to a housing association whilst you were living there. You may be eligible for Preserved Right to Buy (see below for more on this).

What is the Right to Buy Discount?

As well as the length of your tenancy, Right to Buy discounts are also worked out around property types i.e. flat or house. Here is a breakdown of the discount structure;

Houses – 35% discount for public sector tenants who have been living in the home for 3-5 years. This discount rises in accordance with the consumer price index every year. The maximum discount permitted is 70% or £77,900 across England or a maximum of £103,900 in London.

Flats – 50% discount for tenants who have lived as a secured public sector tenant for 3-5 years. Again, this increases by 1% for each year after the five-year threshold. After five years, an additional 2% is added for each year over the discount threshold. The maximum discount is also 70% (or £77,900) and £103,900 for London flats.

If you are buying with someone else, the discount is taken from the tenant who has lived in the property for the longest. Further, if you have previously used the Right to Buy scheme, your discount may be less this time around.

Also, if your landlord has spent money on maintaining the property, your discount may be less than those with houses where no maintenance or renovations have been carried out.

Will I have to Pay Back the Discount when I sell?

Yes, if you decide to sell your Right to Buy property within six years, you will have to pay a percentage of the discount back. Here is how it is calculated;

• 1 Year – 100% of the discount is payable
• 2 years – 80% of the discount is payable
• 3 years – 60% of the discount is payable
• 4 years – 40% of the discount is payable
• 5 years – 20% of the discount is payable
• 6 years or more – none of the discount received is payable

You may not have to pay the discount back if you switch ownership to a family member.

Please note: The discount will apply to the percentage of the home’s value at the time of sale, not when the discount was originally applied.

If you wish to sell you must also first offer it to your landlord for them to buy back, or to another local social landlord. They will have 8 weeks to take up your offer and within that time you should agree a price (for which you may need to bring in a district valuator). If they decline or miss the 8-week window, you may sell your home on the open market.

Please note: If your house is in a rural area, or an area of outstanding natural beauty, you may face some restrictions on whom you may sell your home to.

Let’s Look at a Right to Buy Example:

Mary has been a secured council house tenant for the last seven years. The house is valued at £100,000 and she is permitted a 35% discount based on the length of her residency. On top of that 35%, Mary can add another 1% discount for every year she has been there, past a five-year threshold. This means Mary is eligible for a 37% discount in total. Mary takes out a mortgage for the outstanding value of the house, which is £63,000.

After three years, she decides she wants to sell the property. When Mary sells, she will owe 60% of the discount she received. But as the house increased in value during her ownership, 37% of the new £110,000 price equals £40,700.  This means Mary must pay back a total of £24,420 from the sale proceeds.

How to I Apply for Right to Buy?

If you wish to buy your council property, you must first fill out an RTB1 notice and send it to your landlord. Your landlord will have to respond within a maximum period of eight weeks. If they decline to sell you the property, they must list their reasons why and if they agree, they have 8 weeks to send you an offer price (for freehold properties) and 12 weeks for leasehold properties.

The terms of your discount will also be explained in their response, as well as service charge estimates for the next 5 years, and any known structural problems. 

You will have 12 weeks to respond to this offer and in this time, you can contact your landlord to re-negotiate the price (if you think the market value estimate is too high) and ask for a valuation from a district valuator from HMRC. From there, you can apply for a mortgage.

For some tips on applying for your first mortgage, take a look at our guide.

What are the Advantages of Right to Buy?

• Discounts – The amount of money you could save purchasing a Right to Buy property is substantial. For many tenants, Right to Buy makes purchasing a home achievable.
• Security – Right to Buy provides people who otherwise wouldn’t be able to afford a home a secure financial asset. It is also possible to transfer ownership to your children when you die, giving security to future generations.
• Sell Any Time – You may have to pay back some or all of your discount. But if you do decide to sell, you can purchase another property wherever you like.

What are the Disadvantages of Right to Buy?

• No Government Protection – if you fail to keep up with your mortgage repayments, there is no protection from the government. Further, if you lose your Right to Buy home because of this, the council does not have to offer you another tenancy.
• Covering the Costs of Moving – The discounts on Help to Buy are very helpful, but you will still have to cover the costs of solicitor’s fees, insurance and many other things. Take a look at this Guide to Buying your First Home for more on these figures.

What are the Alternatives to Right to Buy?

If you have a low income, or are having a hard time saving a deposit for a home, you may want to consider reading the following guides;

• Shared Ownership Guide – Where you buy shares in a home and rent the rest.
• Guarantor Mortgages Guide – Where a family member or friend guarantees the mortgage and makes themselves partly liable for paying off the mortgage.
• Preserved Right to Buy – this scheme is available for ex-council houses i.e. your council house was sold at the time of your tenancy to another housing association.
• Right to Acquire – This applies to properties built or purchased by a housing association after 31st March 1997.

If you think Right to Buy might be for you and you would like to find out more about getting a Right to Buy mortgage, please get in touch with an independent mortgage advisor today.