What is a Right to Buy mortgage, and how does it work?
Just as the term suggests, a Right to Buy mortgage is a loan secured against the property to help individuals participate in the Right to Buy scheme by buying the council house or housing association dwelling in which they live.
Given the discounts available on the market value of your home, it is certainly worth considering such a purchase – and the longer you have been a council or housing association tenant, the bigger the discount available.
Across the whole of England, at the time of writing, the maximum discount is currently £84,200, explains the Government website, and in London, it may go up to as much as £112,300. The discount will increase each year in April in line with the consumer price index (CPI).
If you qualify for the scheme, have been a public sector tenant for at least three years (these three years do not have to be consecutive), and want to buy your house, you receive a 35% discount. If you have been a tenant for longer than five years, you get a further 1% discount for every extra year up to the maximum national level of £84,200 or £112,300 in London.
If you want to buy the council or housing association flat you have lived in for three years, your immediate discount on the market price is 50% – and that increases by 2% a year for every year past five years, up to the maximum discounts available nationally or in London.
History of the scheme
The Right to Buy Scheme was introduced by the Conservative government in the 1980s as a way to encourage homeownership and reduce the number of council houses. The scheme was initially only available to council tenants, but it has since been extended to include housing association tenants as well.
Will I qualify for a Right to Buy mortgage?
As with any mortgage, your eligibility and qualification will depend on a whole host of factors – including your income, expenses, financial status (to determine mortgage affordability), and your credit rating, for example.
In the case of a Right to Buy mortgage, of course, you must meet the scheme’s basic requirement of having been a public sector tenant for at least three years. Any mortgage lender is also likely to expect evidence of your having reliably maintained an arrears-free council or housing association tenancy for at least the previous 12 months.
The property needs to be your sole place of residence and not one that you share with other households.
Required documents for the application
When applying for the Right to Buy Scheme, you will need to provide the following documents:
- Proof of residencyThe borrower's residency status, such as whether they are a ...
- Proof of income
- Proof of identity
- Proof of tenancy
Timeline for the application process
The application process for the Right to Buy Scheme typically takes around three to four months. However, this can vary depending on your landlord’s response time and the complexity of your application.
Factors that affect the discount amount
Several factors can affect the discount amount you are entitled to, including:
- The length of time you have been a tenant
- The type of property you are purchasing
- The value of the property
- The location of the property
Can I get a Right to Buy mortgage with no deposit?
Not all mortgage lenders offer the Right to Buy mortgages; those that do may have different terms and conditions, and you may find it difficult to track down a suitable lender.
It may be worth consulting a mortgage adviser since there are lenders prepared to accept the discount for which you qualify as a Right to Buy participant as a sufficient mortgage deposit on the house or flat you want to buy.
What is the maximum I borrow on a Right to Buy mortgage?
Your success in buying your home, of course, rests not only on the question of a deposit but also the amount you can borrow by way of a mortgage.
That amount will depend on a whole host of different factors – such as the job you do, your age, the income you earn, the number of dependents you support, and the level of borrowing or credit to which you are already committed.
If you – or your spouse or partner – are in receipt of benefits, these may also be taken into account as a supplementary source of income.
You might also want to consider supporting your mortgage application by arranging a guarantorA person who guarantees to repay a mortgage if the borrower ... – a close family member, who owns their own home and is of good financial standing – to guarantee your monthly mortgage repayments if you default.
Can I buy any council house with a Right to Buy mortgage?
The Right to Buy scheme only lets you buy the house or flat in which you currently live – you don’t get to choose to live in any council or housing association property.
Can I get a Right to Buy mortgage if I have bad credit?
Anyone applying for any type of mortgage is going to find the whole process more straightforward and stand a greater chance of success if they have a healthy credit score.
Don’t worry too much if that is not the case. Although you are likely to find it more difficult, some lenders are willing to advance mortgages to those with poor credit records – because, for example, you might have been on the receiving end of:
- an adverse credit overview;
- have previously fallen into mortgage arrears or defaulted on the repayment of debts;
- had a County Court Judgment (CCJ) against you;
- entered a Debt Management Plan (DMP);
- made an Individual Voluntary Arrangement (IVA); or
Do I need a Right to Buy mortgage broker?
A professional mortgage broker who has experience of the whole of the mortgage market can help you identify those mortgage lenders most likely to entertain your application favourably.
With the help of a mortgage broker, for example, you might more readily identify those lenders prepared to accept your Right to Buy discount as a deposit, those most likely to advance the size of mortgage you need, and those offering the most competitive mortgage rates based on the mortgage affordability.
A mortgage broker may also help with some of the other common issues associated with mortgage applications, such as:
- maximising your income to improve your mortgage affordability;
- ensuring that your income from various sources (bonuses, overtime, and allowances, for example) are taken into consideration by the lender; or
Alternatives to the Right to Buy Scheme
If the Right to Buy Scheme is not suitable for you, there are several alternatives you can consider:
Shared ownershipA scheme where a borrower purchases a share of a property an... allows you to buy a share of a property and pay rent on the remaining share. You can gradually increase your share in the property over time.
Help to Buy
Help to Buy is a government scheme that provides a loan of up to 20% of the purchase price of a new build property. This loan is interest-free for the first five years.
Rent to Buy
Rent to Buy allows you to rent a property at a reduced rate for a set period. At the end of the rental period, you will have the option to purchase the property.
Pros and Cons of the Right to Buy Scheme
Before applying for the Right to Buy Scheme, it’s important to consider the advantages and disadvantages:
Advantages of the scheme
- You can purchase your home at a discounted price.
- You can become a homeowner without needing a large deposit.
- You have more control over your living arrangements.
Disadvantages of the scheme
- You may not receive the full market value for your property if you sell it in the future.
- You may be required to repay a portion of the discount if you sell your property within the first five years.
- You may not be eligible for the scheme if you have rent arrearsArrears on a borrower's rental payments that may affect thei... or legal issues with your tenancy.
Can family members get the Right to Buy mortgages?
The short answer is yes. The Money Advice Service, for example, confirms that you can apply for a Right to Buy mortgage with someone else who shares the tenancy with you (they are formally named on the tenancy agreement, in other words) or with as many as three members of your family if you have all lived together in the same home for at least the last 12 months. So, you have the option of buying your parents’ home.
Although you do not have the right to buy any armed forces housing in which you might be living, the period during which you are living in that category of accommodation counts towards your required minimum of three years in public sector housing if you subsequently want to exercise a right to buy.
Given the attractive discounts available, you might want to consider buying the council or housing association home in which you live. Right to Buy mortgages are readily available – even if your credit score is less than perfect – and subject to similar mortgage affordability tests as those faced by other borrowers. There are, however, certain restrictions to be aware of, and if you would prefer to rent your home rather than buy it, there are several alternatives available to you. If you are interested, you can always contact a mortgage broker to help you with your mortgage application.
Frequently Asked Questions about the Right to Buy Scheme
What is a Right to Buy Mortgage and How Does It Work in Northern Ireland?
A Right to Buy Mortgage is a government scheme that allows council tenants and housing association tenants in the UK, including Northern Ireland, to purchase their rented property at a discounted price. The scheme is designed to help people get onto the property ladder by offering a more affordable purchase price than the market valuation.
- A government scheme to help council and housing association tenants.
- Available in the UK, including Northern Ireland.
- Offers properties at a discounted purchase price.
Who is Eligible for a Right to Buy Mortgage?
Eligibility for a Right to Buy Mortgage is determined by various criteria, including the type of tenancy agreement you have and the length of your qualifying period as a tenant. Generally, you must be a public sector tenant or a housing association tenant with a secure tenancy to be eligible. An eligibility quiz is often available to help you assess your suitability for the scheme.
- Must be a public sector or housing association tenant.
- Secure tenancy is generally required.
- Eligibility quizzes are available for self-assessment.
What Role Do Mortgage Brokers and Lenders Play?
Mortgage brokers and mortgage lenders are crucial in the Right to Buy Mortgage application process. A mortgage broker can offer professional advice and connect you with suitable mortgage products, while a mortgage lender is a financial institution that provides the mortgage. Your credit history and credit score will be checked during the mortgage application process.
- Mortgage brokers offer professional advice.
- Mortgage lenders provide the actual mortgage.
- Credit history and score are important factors.
What Types of Properties Can Be Purchased?
The type of property that can be purchased through a Right to Buy Mortgage varies. It can be a council property, a housing association property, or even sheltered housing in some cases. However, the property must undergo an independent valuation to determine its market price and the level of discount you may receive.
- Council and housing association properties are generally available.
- Sheltered housing may also be an option.
- Independent valuation is required.
What Are the Financial Aspects to Consider?
There are several financial aspects to consider when applying for a Right to Buy Mortgage. These include the mortgage deposit required, the monthly mortgage payments, and any additional costs like service charges, valuation fees, and buildings and contents insuranceInsurance that covers damage to the contents of a property.. It’s advisable to consult an experienced mortgage broker for mortgage advice tailored to your individual circumstances, especially if you have issues with debt or are a first-time buyer.
- Consider the mortgage deposit and monthly payments.
- Additional costs like service charges and valuation fees may apply.
- Consult an experienced mortgage broker for tailored advice.
Understanding the Right to Buy Mortgage scheme can be complex, but it offers a valuable opportunity for council and housing association tenants to own their homes. Always seek professional advice to ensure you make informed decisions.