Since 1980, people have been able to purchase council homes through a government scheme known as The Right to Buy (RTB). While this programme has been a great boost for many, seeking expert guidance is still advised if you intend to apply for it.
Look through our articles below to learn how to discover a mortgage broker who specialises in Right to Buy offers, how the scheme works, if you can use it if you have bad credit, and much more.
What is a Right-to-Buy Mortgage?
Right to Buy mortgages will assist you in purchasing your council house or Housing Association property through the government’s Right to Buy scheme. While there is no such thing as a right to Buy mortgage,’ mortgage counsellors will always customise their advice to your individual situation.
If you want to purchase your council home through the Right to Buy scheme, you will have access to the same selection of mortgages as any other borrower, and lenders will evaluate you in the same way.
The size of the deposit you can make, as well as other elements like your credit history and current income, largely determine the amount lenders are willing to lend and the interest rate you will pay.
What is the Right To Buy Mortgage Scheme?
Right to Buy is a scheme that allows existing tenants of public-sector homes in England to buy the property they presently rent at a price that is less than the market value. Northern Ireland has similar programmes; however, the restrictions are slightly different. Right to Buy has been around in some form or another for decades, and it was especially popular in the 1980s when over a million municipal houses were sold to renters.
While government policy changes decreased discounts and modified who may utilise Right to Buy, additional reforms to the scheme in 2015 made Right to Buy mortgage both more appealing and more widely available to public-sector tenants in England. The right-to-buy mortgage scheme was recently expanded to include both housing associations and council tenants.
The government has also reduced the qualifying tenancy period—instead of the previous five years, you now only need to have been a public-sector tenant for three years—and increased the maximum Right to Buy discount available – it is now £84,200 (or £112,300 in London), increasing in subsequent years in line with the Consumer Price Index (CPI).
How can I make an application for a Right to Buy Mortgage?
If you wish to apply to buy a council house through the Right to Buy mortgage scheme, you’ll need to go through four phases (this does not include arranging a mortgage, which we’ll go through later).
What you must do is as follows:
- Complete an RTB1 application form. Follow the link to the form, and it will teach you all you need to know to complete the form and email it to your landlord.
- Please submit the application form to your landlord. After completing the online form, you can save it, print it, and sign it in the appropriate locations. Send the printed form to your landlord by recorded delivery (this way you’ll know when it’s been received).
- Then you’ll find out whether or not your landlord is eager to sell. Your landlord must respond to your application within four weeks (eight weeks if they have been your landlord for less than three years). In the event that the answer is no, the landlord should explain why. You can only appeal a ‘no’ if the basis for the refusal is that the house you seek to buy is suitable for elderly people. To do so, you’d need to file an appeal with a tribunal.
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4. If your landlord agrees to sell, he or she will make you an ‘offer.’ If you’re buying a freehold property, you must send this offer within eight weeks of them agreeing to the sale, or 12 weeks if you’re buying a leasehold. The offer will include the following information:
- The price they believe you should pay for the property and how it was calculated
- Your level of discount and how it was calculated.
- A description of the property as well as any land that is included in the price.
- Estimated servicing charges during the first five years
- Any known structural issues with the property, such as subsidence.
You’ll have 12 weeks after receiving your landlord’s offer to decide whether or not you wish to buy the house. If you haven’t responded to the offer within this time frame, your landlord will email you a reminder. You have 28 days to respond, or the landlord may reject your application.
Don’t worry, you can cancel the transaction at any time and continue to rent.
Criteria for eligibility
It goes without saying that being able to finance the purchase is vital. Although obtaining a Right to Buy mortgage for a council house requires completing the criteria outlined above, the lender will also want you to meet their affordability and eligibility standards, so factors such as your income and credit rating may be significant.
If you are eligible, you will be given a mortgage based on x4.5, x5, or even up to x6 your wage before the RTB discount is applied, and a specialised lender may be necessary if any of the following apply to you:
- You have bad credit: Depending on the age and severity of the credit issue, specialist lenders may evaluate your right to buy mortgage applications even if you have bad credit. For example, if the problem is several years old, you might be able to secure a Right to Buy mortgage with debt consolidation on your file.
- You are no longer employed: Some mortgage lenders have a Right to Buy age limit of 75, but others go up to 85, and a minority lend to borrowers even older than this if they are certain they will be able to keep up with their payments throughout retirement.
- You work for yourself: A specialty lender may be more flexible, and offer you a deal that includes regular overtime, incentives, and commission, for example. Some major lenders charge self-employed customers higher interest rates or refuse to lend to them at all.
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Some of England’s distinctive council properties (a small proportion of this sort of housing stock) may contain characteristics of non-standard construction, such as thatched roofs and timber frames. Because some lenders consider non-standard-built properties to be more risky, you may be able to get a better rate from a specialist lender.
If you’re looking for a mortgage and are concerned that you might be turned down due to any of the above, get in touch with one of our consultants.
What is the amount of the Right to Buy Mortgage Discount?
Those who qualify for Right to Buy can receive a reduction in the market value of their home. Currently, the maximum discount available in England is £84,600, and in London, the maximum deduction is £112,800, although both thresholds grow each April.
The size of the discount depends on a number of criteria, including whether you live in a house or a flat and how long you’ve been a public sector tenant. This is how it works:
Being a house
If you have been a public-sector renter for three to five years. Here, you’ll get a 35% reduction off the market value of your home (up to a maximum of £84,600 or £112,800). So, if you reside in a £200,000 home, the Right to Buy discount might be worth £70,000, allowing you to buy the home for less than £130,000.
If you’ve been a renter in the public sector for more than five years. After five years, the discount increases by 1% for each additional year you’ve been a public sector tenant, up to a maximum of 70%, or £84,600 in England and £112,800 in London, whichever is less.
Residing in a flat
If you have been a public-sector renter for three to five years. Here, you’ll get a 50% reduction off the market value of your home (up to a maximum of £84,600 or £112,800). So, if you live in a £140,000 property, the Right to Buy discount might be worth £70,000, allowing you to buy the property for less than £70,000.
If you’ve been a renter in the public sector for more than five years. After five years, the discount increases by 2% for each additional year you have been a public sector renter, up to a maximum of 70% (again, capped at £84,600 or £112,800).
Where your landlord has invested money in either building or maintaining your house, the size of the discount you are entitled to may be reduced. The Gov.UK website has a useful Right to Buy calculator that will give you an idea of the discount you may be entitled to.
If you’re looking to buy in Northern Ireland, the highest discount is £24,000. See the NIdirect website for further information on how the discount is computed.
What is the maximum amount I may borrow with a Right to Buy mortgage?
Your current situation, occupation, income, age, personal credit obligations, and the number of dependents you have will all play a role in this. I will be delighted to work out a price once you have been awarded the Right to Buy and have filed an enquiry.
In some cases, benefit income can be used as a supplemental source of income to supplement the main job. Guarantors (of good standing), such as children vouching for their parents with a Right-to-Buy, can be considered as long as their income supports their own personal commitments.
Can I participate in the right to buy mortgage scheme if I have bad credit?
If you have bad credit or a bad credit history, it may impair your application for a Right to Buy mortgage. However, with The Money Hub’s assistance, you can give yourself the best opportunity of getting your application granted.
What are my odds of getting a Right to Buy mortgage if I have bad credit?
Even if you have previously been turned down by high street banks or building societies, you may still be able to obtain a Right to Buy mortgage. Our expert panel of lenders will be able to examine your affordability and credit history and offer you relevant information on appropriate products for you.
Are there any disadvantages to Right to Buy?
One disadvantage of a Right to Buy mortgage is that if you sell the house within five years, you will be required to repay some of the discounts you obtained. This is based on a sliding schedule of 80% of the discount in the first year to 20% in the fifth year — it must be paid back in full if you sell within a year.
If you sell within the next ten years, you must also give your housing association or social landlord the option to buy it back at market value first, even if you could receive a better price on the open market. The landlord has eight weeks to determine whether or not to exercise the option, following which you can sell it to anyone if they do not.
Having to buy the property you live in rather than choosing from other residences on the market may also be regarded as a disadvantage.
Alternatives to a Right to buy mortgage
If you qualify for the Right to Buy but decide it isn’t for you, there are other government schemes, such as Help to Buy or shared ownership, that can help you buy a home with a lower deposit.
There are also low-deposit mortgages available for property purchases that do not have the constraints of these schemes.
Right To Buy FAQs
Do you need a deposit with Right to Buy?
One of the primary benefits of Right to Buy is that you do not need to save for a deposit because you can use your Right to Buy discount instead. The majority of lenders will take a Right to Buy discount as a deposit, but not all of them will.
Can you borrow more on a Right to Buy mortgage?
Yes, if you have the right to buy a mortgage, you can borrow more money. However, you must consult not just with your mortgage lender, but also with your local government, which must sanction the additional borrowing above and beyond the lowered purchase price.
What is maximum discount on Right to Buy?
If you’ve been a public sector tenant for 3 to 5 years, you’ll get a 35% discount. After 5 years, the discount increases by 1% for each additional year you’ve been a public sector tenant, up to a maximum of 70% or £84,600 across England and £112,800 in London boroughs (whichever is lower).
