Guide to Right to Buy mortgages
- Most lenders accept your Right to Buy discount as a partial or total mortgage deposit
- You’ll still have to save some money to cover things such as legal costs and surveys
- Some specialist Right to Buy mortgages are available, but you can also access many standard mortgage products
- Request a call back or phone 0800-073-1959 to speak to a fee-free adviser from London & Country to find out what’s available for you
Right to Buy might be most famously associated with Margaret Thatcher and the 1980s, but it’s a policy that’s still very much alive and popular.
According to government figures,† Right to Buy uptake dropped to its lowest level in 2009-10 with just 3,179 sales - a far cry from the peak of 167,123 sales in 1982-3.
However, there’s been a resurgence since changes were made to the scheme in 2012, with sales reaching 16,519 in 2014-15.
It’s not hard to see why. Right to Buy allows council tenants to purchase their council home at a substantial discount and sometimes without saving a deposit for a mortgage, making home ownership a reality for many on low incomes.
To be eligible for Right to Buy you need to have been a council tenant for at least three years, although not always for a continuous three years.
The Right to Buy discount
In a Right to Buy sale, the property is given a market valuation, then a government discount is applied.
The Right to Buy discount varies depending on where in the country you live, how long you’ve been a council tenant and whether your home is a house or a flat. To find out exactly what discount you might be eligible for, you can use the government’s Right to Buy discount calculator.†
Once you know your level of discount you’ll be able to start planning what type of mortgage you might be eligible for, and the good news is that you may be able to use your discount in lieu of a deposit.
Using your Right to Buy discount as a mortgage deposit
One of the big advantages of Right to Buy is that it may mean you don’t have to save for a deposit because you can use your Right to Buy discount instead.
You don’t usually need a Right to Buy-specific mortgage, although some lenders will have products marketed as Right to Buy mortgages that are tailored specifically to this type of buyer.
Most lenders will accept a Right to Buy discount as a deposit, but not all will so it’s a good idea to speak to a mortgage adviser who can find you the right deal and advise on the level of Right to Buy discount you have.
You should be aware that having the discount doesn’t mean you won’t have to save any money to buy your council home. There may be up-front mortgage fees to pay as well as survey and conveyancing costs, so you should save and budget at least a few thousand pounds for these expenses.
Affordability criteria for Right to Buy mortgages
If you need a mortgage to buy your council home you’ll be subject to the same mortgage affordability criteria as any other mortgage applicant.
This means your income and expenditure will be assessed and you’ll have to pass the lender’s credit check.
If you’re self-employed you’ll probably be asked for several years’ worth of accounts to prove your income.
If you have no income from employment or self-employment you’re unlikely to be able to secure a mortgage, no matter how big your Right to Buy discount.
Although some types of benefits may be taken into account when calculating mortgage affordability, housing benefit won’t be. That’s because housing benefit can’t be used to pay a mortgage, so it’ll stop once your mortgage completes, even though you haven’t moved house.
Perhaps the biggest disadvantage of a Right to Buy mortgage is that you won’t get to choose where you live, as you’ll be buying the house or flat you already dwell in.
That might not be ideal if you’re unhappy with the area or you want to move for work or other reasons.
Also, if you sell within five years you’ll have to pay back some, or all, of the discount.
If you sell your home within 10 years, you must first offer it to your old landlord or another social landlord at the market price before putting it on the open market.
This all means that if you want to buy your next home there are a few obstacles that could make the process slower and more costly.
Alternatives to a Right to Buy mortgage
Because of the reasons listed above, you might decide Right to Buy isn’t for you, even if you do qualify.
There are also low-deposit mortgages available for buying homes without the restrictions of these schemes.
If you can save for a deposit, there are alternatives that will open up your housing options considerably.
By Derri Dunn