Getting on the property ladder is a big dream of many in the UK, which of course includes local authority council house tenants.
In that context, mortgages are useful financial tools that can assist in purchasing property. With a suitable mortgage plan, you can purchase your dream property without needing to have the funds to purchase the property outright.
That’s why mortgages based on the Right to Buy scheme were implemented, as they aim to make it easier for public sector tenants to buy a home.
But what exactly is a Right to Buy mortgage, and how does it work? That is what we have discussed in this guide today, so dive in!
Table of Contents
- What Is The Right To Buy Scheme?
- Who Has A Right To Buy?
- What Is A Right To Buy Mortgage?
- How To Get A Right To Buy Mortgage?
- How Much Discount Can You Get With A Right To Buy Mortgage?
- Frequently Asked Questions
What Is The Right To Buy Scheme?
In simple terms, the right to buy scheme is a government scheme that allows people in the UK to buy a property at a price that is lower than its actual market value.
Of course, the buyer needs to be a public sector tenant who has rented the property for a certain period of time. The amount of time they spend as a tenant entitles them to get a discount on the property.
On that note, the tenant can only purchase social housing properties using any potential discount that are owned by public sector landlords like local councils or housing associations.
In this regard, the discount amount that you can get on such a property can go up to £127,000, which is quite a large sum.
However, this limit is only applicable to those living in London and surrounding areas. If you live outside London, then the maximum possible discount you can get is £96,000.
Please bear in mind any discounted purchase price will need to be repaid if the property is sold within 5 years on a sliding scale. Also for sale within 10 years, it must first be offered to the local authority before being sold on the open market.
Who Has A Right To Buy?
There’s no doubt that the Right to Buy scheme can be extremely helpful for eligible tenants. However, you should keep in mind that the Right to Buy scheme does not apply to everyone.
So, if you wish to purchase your council home, you need to satisfy the following conditions:
- The property is your main or only residence
- You are a secure tenant
- It is a self-contained accommodation
- You had a public-sector landlord for three years as a minimum.
A secure tenancy is a council housing option that allows the resident to live in the property with certain assurances, provided they don’t break the tenancy rules.
Also, the terms of the fourth criterion above are cumulative, which means that the buyer does not necessarily need to have a public-sector landlord for three years in a row.
What Is A Right To Buy Mortgage?
Now that you have a basic idea about the scheme, it’s time to talk about the Right to Buy mortgage.
In principle, it is just like any other residential mortgage option, which means you can avail of the same offers and deals available to regular property buyers.
However, you need to be eligible under the Right to Buy scheme for getting such a mortgage.
So, if you fail to meet any of the criteria mentioned above, you won’t be able to get a Right to Buy mortgage option.
Furthermore, the Right to Buy mortgages will be unavailable in the case of private residential purchased properties. Since these properties are not owned by public-sector landlords, they will not be covered under the Right to Buy scheme.
For a lot of lenders, right to buy purchases can be made on standard products with the level of discount just acting as the deposit.
How To Get A Right To Buy Mortgage?
As we have already said before, a Right to Buy mortgage is basically the same as any regular mortgage.
Thus, the procedure for getting this mortgage is similar to that for getting a conventional residential mortgage.
With that being said, there are a few things that you need to take care of first. So, if you are a first-time buyer who wishes to buy a council home or flat under the Right to Buy scheme, read on!
Step 1: Fill Out An RTB1 Form
First, you will need to fill out the RTB1 application form, which is a Right to Buy form that demonstrates your interest in purchasing a council home. After you have completed it, you will need to send it to your public landlord.
Step 2: Wait For A Response
Once you send the filled-out RTB1 form, you will need to wait for a reply. Typically, the landlord needs to respond within four weeks of receiving the application to show its been received. On that note, if the landlord declines the offer, then they will need to state the reason for it.
Within this stage the landlord will complete all there necessary checks, such as a valuation of the property to help them attain the level of discount available based on the current market value of the property.
Step 3: Respond To The Landlord’s Offer
If the landlord agrees to your proposition, they will send you a Section 125 Notice, which is basically an offer letter. This includes:
- The property’s purchase price after applying the discount
- Description of the property
- Service charge estimates for the first five years
- Any known problems or structural issues with the property
You will need to respond to the landlord’s offer letter within 12 weeks if you wish to go ahead with the purchase.
In case you feel that the landlord’s proposed price is too high, you can challenge it by requesting an independent property valuation from the HMRC valuation office.
Alternatively, you can pull out and continue renting the property if you do not wish to proceed with the purchase.
Step 4: Apply For The Mortgage
Once you have agreed to the landlord’s offer, you can accompany this by proceeding with the mortgage application. For this step, you will need to research the different mortgage lenders that are available or consult an experienced broker.
After you have decided on the most suitable lender, you will need to get in touch with them to initiate the application.
In order to evaluate your application, the mortgage provider will request documents like IDs, address proofs, income records, bank statements and so on.
Once your affordability is verified and other requirements have been met, the lender will approve your mortgage.
You will also be required to provide details about your credit history, which will help the lender determine your reliability. If you have a good credit record, your mortgage will be approved quickly.
But if you have a bad credit history, then you might need to improve your credit score before applying for a mortgage or approach a specialist bad credit mortgage lender.
How Much Discount Can You Get With A Right To Buy Mortgage?
As we have stated before, the maximum discount you can get on a property with a Right to Buy mortgage is £127,000 (£96,000 for those living outside London). However, the actual discount that you get is usually less than that.
The final discount amount is based on factors like the property type, market value, and length of time lived in the property.
Below, we have broken down the discount rates available to buyers.
|Type of property
|3-5 years of tenancy
|5+ years of tenancy
|1% increase in discount amount per year (up to a maximum of 70% or the upper discount amount, whichever is lower)
|2% increase in discount amount per year (up to a maximum of 70% or the upper discount amount, whichever is lower)
Frequently Asked Questions
1. What Should You Do If The Landlord Delays Responding To The RTB1 Application?
If the landlord fails to respond to your RTB1 form within four weeks, you can fill in and send an RTB6 form. When there is still no response after a month, you should fill out the RTB8 form.
The former will allow you to get a price reduction due to delays potentially, while the latter will take out the rent amount paid during this time from the final price.
2. Can You Make A Joint Application?
Yes, you can make a joint application for Right to Buy with someone who shares your tenancy. Aside from that, you can get a joint application with up to three family members who have lived with you for one year.
In terms of the mortgage, certain lenders may allow applications through joint borrower sole proprietor where the additional borrower will not be on the title deeds or the right to buy paperwork.
3. How Much Money Can You Borrow With A Right To Buy Mortgage?
The amount of money you can borrow depends on the property’s purchase price (minus the discount) and the deposit amount paid. Apart from that, the lender will consider your affordability and credit record to determine the maximum borrowing amount.
Certain lenders may allow you to borrow above the discounted purchase price for certain reasons.
We hope that the information in this guide has helped clear any doubts you had regarding Right to Buy mortgages.
As you can see, such a mortgage can be highly beneficial for people living in social housing properties.
The discount offered under the Right To Buy Scheme can make the purchase process highly affordable and convenient.
Needless to say, you can use the information in this guide to apply for such a mortgage easily.
However, if you require additional assistance, you can seek help from a mortgage broker. These individuals can analyse your situation and provide tailored solutions.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.
Our goal is simple - to provide most up-to-date and accurate mortgage information to make your mortgage journey as stress-free as possible. Have a question? Fill up the quick form and one of our mortgage advisor will connect with you.