Right to Buy Mortgages

In this article, we’ll explain how the Right to Buy scheme works, what the benefits and drawbacks are, and where to look for help securing a mortgage if you qualify for this opportunity. 

What is Right to Buy?

Right to Buy is a government scheme, first introduced over 40 years ago by Margaret Thatcher’s administration, offering council tenants the opportunity to buy their homes at a discount. Although Right to Buy has now been abolished in Scotland and Wales and is limited in Northern Ireland, it is still open to prospective homeowners in England.

Most people who qualify for the scheme use a mortgage to fund the purchase of their property.

How does a Right to Buy mortgage work?

To buy your council house via the Right to Buy scheme, a deposit might not be needed if the discount you receive is greater than the deposit needed. However, some lenders may still ask for a deposit, depending on your financial situation, credit history, and the specific mortgage product chosen.

For example, if you’re buying a home with a true market value of £200,000, and receive a discount through the scheme of £80,000 you can use this amount as a deposit. So, in this scenario a lender would see this as the equivalent of providing a 40% deposit (but without using actual cash savings), leaving you with a 60% loan-to-value (LTV).

Not all mortgage lenders would allow for this, but a mortgage broker with experience arranging these types of home loans would know which lenders to approach.

How do you qualify for Right to Buy?

To be eligible for the Right to Buy scheme you have to meet the following criteria:

• Your property is your main or only home (can either be a house or a flat)
• It is self-contained
• You have a secure tenancy
• You’ve been a council or public sector tenant for at least three years, not necessarily continuously.

You won’t be eligible for Right to Buy if you live in sheltered housing, have had serious debt problems recently, such as bankruptcy, or have any outstanding possession orders against you.

You can use the Right to Buy scheme as a single person or as a joint purchase with either someone who shares your tenancy or with up to three family members who’ve lived with you for the past 12 months, even if they aren’t on your tenancy.

If you rent your home from a housing association rather than a local council then you may still be eligible to buy your property at a discount through a similar scheme called Right to Acquire.

What is the Right to Buy Discount?

This is the amount of discount you can receive from the market value of the property if you qualify for the Right to Buy scheme. It’s based on:

• The length of time you’ve been a tenant with a public sector landlord
• Whether you’re buying a house or a flat
• The value of the property
• Which part of the country you live

How much is the discount?

If you’re buying a house through Right to Buy, the discount starts at 35% for people who have been public sector tenants for between 3-5 years, increasing by 1% for every year after 5 years.

For a flat, the initial discount is 50%, increasing by 2% per year after 5 years. If you are buying your property with someone else, you count the years of the person who has been a public sector tenant the longest.

For both houses and flats, the maximum discount you can receive is 70% or £96,000 across England and £127,000 within London, whichever is lower. These caps increase every year in line with inflation.

Your discount may also be reduced if your landlord has spent money on your home in the last 10-15 years, depending on when they acquired it (10 years if acquired before 2nd April 2012, 15 years if after this date).

You can use our calculator below to work out how much discount you could get based on all of the above variables.

How to apply for the scheme and get a mortgage

Once you’ve checked you’re eligible for Right to Buy, your next step should be to find a mortgage broker with experience helping people arrange home loans using the scheme.

Using our free broker-matching service you can speak to an advisor who specialises in this area by simply making an enquiry online.

They’ll be able to help with: 

• Applying for Right to Buy: You’ll need to submit a Right to Buy application form (RTB1 notice) to your landlord in the first instance. They then have 4 weeks to say yes or no, and they must give a reason if they turn you down. If your landlord approves your application they will then calculate your discount and send you an offer. They have 8 weeks to do this for freehold properties, and 12 weeks for leasehold. Once you’ve received their offer and calculation you have a further 12 weeks to decide for sure that it’s what you want to do. Your mortgage broker will be able to help guide you through the application to make sure you’ve included all the necessary information, ensuring there are no unnecessary delays.
• Finding the right mortgage lender and securing the best deal for you: Your mortgage broker will be able to identify those lenders who cater for Right to Buy applications and offer the best interest rate terms available across the whole market. This will save you time and, potentially, some money too.
• Gathering all the necessary paperwork required for your mortgage application:  Your broker will be able to help you download your credit reports, guide you through the application process and all the typical documents required – proof of income, recent bank statements, personal ID etc. You will also need to produce any documentation relating to your eligibility for the Right to Buy scheme.

Mortgage eligibility criteria

In addition to qualifying for the Right to Buy scheme, you will also separately need to meet your lender’s eligibility criteria to be able to secure your mortgage.

The process for a Right to Buy mortgage will be just as stringent as a standard application. First, your lender will look at affordability, using your income and financial commitments to set a limit on what you can borrow – typically 4.5 times your salary.

You can use our affordability calculator below to see how this could work out for you, based on your own annual income:

They will then look at other factors to assess your suitability for the home loan, including:

• Deposit/loan to value (LTV)
• Age
• Employment status
• Credit history

Advantages and Disadvantages

Before proceeding with your Right to Buy application it’s worth understanding the main pros and cons of buying your current home using the scheme.

Advantages

The main advantage of the Right to Buy scheme for homeowners of course is that you’re getting a significant discount on the cost of your home. This also means that for a lot of people, you don’t need to have any kind of deposit saved, as the discount can be counted as a deposit by most lenders.

The added bonus of using Right to Buy is that you don’t need to physically move house – you get to stay in your own home, just with the security of owning it rather than renting.

Disadvantages

Purchasing your home through Right to Buy can be a lengthy process while you wait for your landlord’s approval/offer and can also add an extra layer of complications down the line should you wish to remortgage or sell.

If you sell within 5 years you’ll be required to pay back some of the discount on a sliding scale, and even after this 5 years is up, you’ll still need to offer your local council or a local social landlord first refusal should you sell within 10 years.

Which lenders offer Right to Buy mortgages?

There are plenty of Right to Buy mortgage lenders available, but it’s not always easy to find out what their terms and criteria are.

This is why it’s always best to speak to a specialist broker who knows the sector inside-out, but to give you an idea of the options available, here are some mortgage lenders that will consider applications of this nature:

• NatWest offers Right to Buy mortgages of up to 100% of the discount price or 90% of the market value (whichever is lower).
• Barclays will consider applications to borrow up to 95% of the discounted price or up to a maximum of 80% of the property’s market value
• Halifax can offer lending up to 100% of the discounted price
• Skipton Building Society will lend up to 100% of the discounted price

Most of the time you’ll have access to the lenders’ standard mortgage range but each will have their own set of criteria and lending limits, so it’s important to speak to a broker ahead of time so you can be certain you’re approaching the lender that’s right for you.

What rates do they typically offer?

As with all mortgages, Right to Buy mortgage lenders’ rates can vary depending on the provider and your own individual circumstances (remember, you’ll need to pass all usual affordability and eligibility criteria in order to be approved).

The table below provides a snapshot of the typical mortgage rates on offer at the moment:

Please note that the above rates were accurate at the time of writing, but are always subject to change at the lender’s discretion. Speaking to a mortgage broker is the best way to find the most up-to-date deals.

Selling your right to buy home

Once you’ve bought a property using the Right to Buy scheme you can technically sell it whenever you like. However, there are certain time scale restrictions that you should be aware of.

If you sell your property within 5 years of buying it you’ll have to pay back a proportion of the discount you received. This works on a sliding scale starting with all of the discount if sold within one year, 80% in the second year, 60% in the third, 40% within four years and 20% within five.

After five years you don’t have to repay any of the discount. However, if you sell within 10 years you must give your old landlord or another social landlord in the area first refusal. If your landlord rejects the offer to buy you’re free to sell your property on the open market.

Can you remortgage a Right to Buy property?

Yes you can, and it is possible to release additional equity through remortgaging too, but don’t be fooled into thinking that buying a discounted Right to Buy property means you can immediately release the equity you gain from the discount – it’s not an easy route to free cash.

Normally remortgaging would be a matter of looking at the equity you have available, comparing eligible deals, and taking out the new mortgage through a new or your existing lender. When you have bought your property through Right to Buy, however, you’ll also need to speak to your local authority first, to discuss your plans with them and get their approval. This isn’t guaranteed, especially if you want to increase your borrowing over and above the original discounted price.

Are there lenders for borrowers with bad credit?

Yes, though your options may be more limited, with not all lenders able to accommodate applications of this nature. Among those who do, you’ll usually be subject to stricter eligibility criteria and higher interest rates, so it’s important to factor this into your affordability calculations.

However, with the exception of severe issues such as bankruptcy, having bad credit won’t rule you out completely from getting a Right to Buy mortgage. Some lenders are able to overlook credit issues if they happened more than six months ago (or even three months in some cases), and others may still be able to approve you depending on what the issue was, with, for example, missed or late payments often tolerated better than IVAs.

But it will all come down to your credit history and the provider you’re approaching, and it’s vital to check your credit reports in advance so you know exactly what the issues are before you apply.

How Online Mortgage Advisor can help

If you’re ready to find out more about Right to Buy mortgages and want help finding the perfect lender, it’s time to get in touch. Our unique broker-matching service will pair you with an advisor who can find your ideal mortgage, and it couldn’t be easier to get started.

Just call us on 0808 189 2301 or make an enquiry and we’ll do the rest. We’ll simply ask for a few details and from there can find the broker to suit – it’s completely free and there’s no obligation, just the chance to find the right lender with expert support at your side.