Right to Buy allows many council tenants to purchase their homes at a discounted price. Outside of London, the maximum discount available to council tenants in England is £82,800. In London boroughs, the discount can be as high as £110,500. Discounts increase in line with inflation (Consumer Price Index).
There are three drivers that determine the discount sum available to council tenants. These drivers are:
- Length of Residency as a Council Tenant
- Type of Property
- Valuation of the Property
Length of Residency as a Council Tenant
If multiple council tenants for the same property are hoping to purchase it, the discount is based on whichever person has been a public sector tenant for the longest amount of time. To qualify for Right to Buy, you must have been a council tenant for a minimum of 3 years.
Type of Property
You can acquire a larger Right to Buy discount when purchasing a flat instead of a house. If you are purchasing a flat, after 3 years a 50% discount may apply. The same discount rate also applies up to 5 years of residency. After 5 years, for each subsequent year of residency a further 2% discount applies. A maximum discount of 70% is available for council flat purchases under Right to Buy.
Whereas, for house purchases, a 35% discount is available after 3 years of council tenancy. This discount rate also applies up to 5 years of residency. After 5 years, for each subsequent year of residency a further 1% discount applies. A maximum discount of 70% is available for council house purchases under Right to Buy.
Valuation of the Property
The discount available to council tenants may be less if the landlord has spent money on building or maintaining the property. You will not have access to any Right to Buy discount if your landlord has spent more money on the property than the valuation of the property by the council.
Acquiring a Mortgage for a Right to Buy Purchase
The Right to Buy discount acts as a deposit for mortgage purposes. Therefore, with use of the discount, mortgage applicants are not required to use any of their own savings towards the purchase. A significant benefit of the Right-to-Buy discount is that it enables applicants to acquire a mortgage at a favourable loan-to-value percentage. As discussed in previous articles, the main determinant of interest rates offered by lenders is loan-to-value (LTV). LTV is defined as the mortgage sum relative to the valuation/purchase price of the property. The lower the LTV bracket, the lower the interest rate offered by lenders. Therefore, if applicants can acquire a discount of 70% for their council property, thus only requiring a 30% mortgage, they will have access to the lowest interest rates available on the market. The only documentation that your mortgage broker will require, in order to arrange a secured loan for your council property, is the signed Right to Buy legislation document. This document will be provided by the local authority.
For further information on purchasing a property with the Right to Buy scheme, please click the ‘Contact Us’ button and submit a mortgage enquiry form. Our advisers would be happy to arrange a free consultation to discuss your requirements in depth.