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Right to Buy Rates

Everything you need to know about getting the best deals

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By Pete Mugleston   Mortgage Advisor

Last updated: 6th February 2019 *

Getting the best Right to Buy mortgage rates can be tricky, as many lenders either don't offer the right to buy, or if they do, are restrictive about their policy in who they will lend to.

Hundreds of customers ask us about how to get the best deals, especially when their situation isn't straightforward, so we’ve put together this guide compiling all of the key information about Right to Buy mortgages in the UK to help. You’ll find the following topics covered below…

  • What is Right to Buy in general?
  • Specialist Right to Buy mortgage deals
  • Whether Right to Buy Mortgage rates are higher
  • How to compare Right to Buy mortgages
  • Where to find the best Right to Buy mortgages
  • What deposit you’ll need for a Right to Buy mortgage
  • Getting a right to Buy mortgage with bad credit
  • Speak to a Right to Buy mortgages expert

What is the Right to Buy?

The Right to Buy (RTB) scheme was introduced by the Thatcher government in 1980 and allows both council and (in the vast majority of cases) housing association tenants to buy their current rental property, usually at a significant discount.

Under current provisions, public sector tenants of at least three years standing can access discounts of 35% on purchase prices for houses (with a further 1% of discount for each year beyond the first five years of tenancy, to a maximum of 70%) and 50% on flats (with an additional 2% of discount for every year beyond the first five, to a maximum of 70%), although you will be ineligible for discounts if the property is not your main home or if you share communal bathrooms and toilets (i.e. the property is not self-contained).

Specialist Right to Buy mortgage deals

Some specialist lenders offer mortgage packages which are specific to Right to Buy customers, although in most cases you will be able to access a standard mortgage product (and at the lenders usual terms).

However, as with any ‘conventional’ mortgage deal, all Right to Buy loan applications will be subject to the usual range of considerations and restrictions (in relation to incomes, outgoings and lending calculations etc), with higher risk factors (such as high loan to value ratios (LTVs), adverse credit or debt problems, ‘unique’ or unconventional properties or older borrowers) inevitably reducing the number of available lenders and increasing the possibility of higher rates and deposit amount requirements.

Multiple issues of high risk will invariably restrict the number of available lenders even further, although it will not necessarily render the likelihood of achieving a loan impossible- there are a vast number of specialist lenders who will cater to these sticking points and issues.

So, if you are in any doubt as to how to proceed, make sure that you speak to an expert first.

Are Right to Buy mortgage interest rates higher?

As with all mortgages, RTB mortgage rates will depend on a number of factors, including your credit rating  and how much deposit you put down. The best Right to Buy mortgage rates will be offered for those with a larger deposit and clean credit, among other things.

In other words, the rates you will end up on if you use the Right to Buy scheme are no different than the rates you’d get on a standard residential mortgage application.

How much deposit do I need?

Many lenders offering right to buy mortgage deals (although by no means all) will accept the RTB discount as a full deposit against the purchase of the property, while others may expect you to pay an additional deposit irrespective of the size of the discount you receive (usually around 5%, although the amount will vary from lender to lender).

The rule of thumb in situations such as these is to take professional advice before committing to a specific lender and to shop around so as to access the best deals.

Another thing to bear in mind is that most RTB lenders will use current market values on properties (as opposed to the discounted amount) when calculating loan to values (or LTVs- the difference between the size of the mortgage loan and the overall value of the property).

This means that a RTB house with a market valuation of £100,000 and a 35% (or £35,000) discount will be regarded as a 65% LTV.

In addition, some lenders will allow you to borrow totals which exceed the RTB price (in order to facilitate home improvements, legal costs, surveys or other fees, for example), with some offering up to 85% of the market value and a minority who will offer more.

The experts we work with can help to find the best mortgage deals for Right to Buy for you.

What mortgage can I afford to get through Right to Buy?

The amount RTB customers are allowed to borrow is calculated by multiplying annual salaries (as well as any other source of income that you may receive, such as pensions, investments, benefits, commissions or bonuses) by a set figure (usually four or, in some cases, five times the amount of your earnings, although a tiny minority of lenders will offer calculation multiples of up to six times the annual income, under the right circumstances).

Your outgoings will also be factored in

Credit assessments and the impact of outgoings or other financial commitments (such as repayments on credit cards, debts, utility bills, council tax, insurance costs, childcare, travel costs, subscriptions and expenses relating to social activities) will also play a crucial role in determining the amount that you will ultimately be allowed to borrow and could substantially reduce the size of the loan that you will be offered.

In addition, sources of income, length of employment and the type of employee contract that you have will also be factored in, with some lenders choosing to treat bonus or commission-based incomes at a lower percentage level on overall amounts when calculating loans (according to circumstances).

Self-employed workers may  be required to provide several years’ worth of accounts in order to support their claims, with most lenders insisting on a minimum of three years of supporting documentation, some accepting two or one years’ worth and a handful who will accept nine months of trading accounts.

Finally, although most lenders will accept certain types of benefits to support mortgage applications, housing benefit payments will not be considered at all as they cannot be used to pay off mortgages.

Can I get Right to Buy if I have credit issues?

For more info read our article on bad credit mortgages here

Most mainstream banks or building societies are unlikely to lend against applicants with a history of low or adverse credit issues, although there are a growing number of specialist lenders who are willing to engage with these problematic custom-bases.

However, it’s worth bearing in mind that the rates and fees that they are likely to charge will almost certainly be priced to reflect the higher levels of risk associated with credit poor lending and may be considerably higher than for ‘clean credit’ clients.

Moreover, in all but a handful of cases, these lenders will assess applications on the basis of the severity of the issue, thereby affecting potential eligibilities and (in the worst cases) substantially reducing the number of lenders who will furnish loans, and how long it has been on your file.

The following table should give you some idea as to the probable decision of lenders in relation to a range of different financial ‘misdemeanours’ (and in order of perceived severity), although you should bear in mind that customers that have an undischarged bankruptcy or owe money to creditors are not eligible for RTB discounts:

Can I use Right to Buy on an unconventional property?

Although some  lenders are unwilling to lend against properties which exhibit unconventional construction materials or period features, this issue is less likely to affect Right to Buy mortgage customers.

This is because the property that you will be buying will (presumably) have been built and maintained by a local authority and should therefore conform to an acceptable construction standard (from the point of view of lenders at the very least).

If  this does not apply to your chosen home however, you may need to approach a specialist lender or one who is prepared to deal with a wider range of ‘niche’ or unique buildings than conventional providers (although their rates may reflect the higher degree of risk associated with these loans).

Can I get a Right to Buy mortgage into retirement?

Many lenders will apply maximum age caps on later life borrowers, limiting the age-range at which people are allowed to apply for loans to between 65 and 80 years of age (on average) and restricting the length of mortgage terms to between 70 and 85 years, thereby limiting the depth and range of available lenders and making it harder for elderly customers to achieve a mortgage (although it’s worth pointing out that an increasing number of lenders now have higher or no upper-age limits at all).

In addition, equity release and other later life mortgage options will be of little use for RTB customers in these circumstances as you will not own your property and will have no equity to draw on.

Can I use Right to Buy to buy a second home or rental property?

In a word, no. Right to Buy eligibilities and discounts are reliant upon the property being the sole home of the prospective buyer. However, if you’re in the market for a second home or a rental property, the advisors we work with might have access to favourable deals for a borrower in your circumstances, so make an enquiry today.

Can I get a secured loan against my Right to Buy property?

Certainly not in the short term (and therefore irrelevant to the mortgage needs of customers). However, Right to Buy mortgage owners who have owned their property for longer than five years (the so-called pre-emption period) can do what they like as the council will no longer have any rights over it at all.

Moreover, if the owner wishes to raise capital by taking out a secured loan on the property before this period is cleared, they may be able to do so via a handful of specialist lenders.

These providers will take out an indemnity policy against the loan to cover any potential claims by the local authority (in the event of a borrower choosing to sell their property during the first five years of ownership).

However, their rates and fees are likely to be  high, while sellers will also have to pay some or all of the discount that they will have received (according to the length of tenure) if they do decide to sell.

For example, all of the discount will need to be repaid if the property is sold within 12 months of purchase, 80% after one-two years of ownership, 60% after two-three years, 40% after three-four years and so on.

In addition, subsequent increases in the market value of the property will also need to be repaid, so it would be best to approach this option with a high degree of caution.

Speak to a Right to Buy mortgages expert

If you’d like help finding the best Right to Buy mortgages call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.

We can connect you with one of the specialists we work with who’ll be able to help identify the best mortgage for right to buy for you, based on your needs and circumstances.

Updated: 6th February 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information.

The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA.

Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

 

Right to Buy Information

Looking for specialist advice? Read through our articles about different Right to Buy Mortgages, and how best to find the right mortgage for you.