Right to Buy mortgages

If you have been living in a council property for some time and are keen to own your home instead of simply rent it, the government’s Right to Buy scheme could transform you from tenant to homeowner in just a few short months.

Getting on the property ladder has many benefits. Better financial security often cited as one of the reasons people want to purchase a property instead of continue to rent it from the public sector. But could you really benefit from purchasing your council house? And could you afford to keep up the repayments on your new Right to Buy mortgage in the longer term?

• What is a Right to Buy mortgage?
• Am I eligible for Right to Buy?
• What kind of discounts could I get?
• How long will I have to live in my council property before I can buy it?
• Can I purchase a Right to Buy property jointly, with somebody else?
• Can I get a Right to Buy mortgage?
• What if I don’t have a great credit score?
• I’m on a low income – could the Right to Buy scheme still work for me?
• What if I’m on benefits?
• How do I apply for Right to Buy?
• What are the costs involved in purchasing a property through the Right to Buy scheme?
• How long does it take from start to finish?
• Why do I need a specialist Right to Buy mortgage broker?
• Can I buy a council house via Right to Buy if I already have a mortgage?
• Can I get an interest-only Right to Buy mortgage?
• Can I get a Buy to Let (BTL) mortgage on a Right to Buy property?
• What if I want or need to sell my property?
• How do I remortgage a Right to Buy purchase?
• Your Right to Buy checklist
• Speak with one of our experts

The friendly, results-focused mortgage advisors here at CLS Money will be able to help you answer both of these questions, and many more. We have decades of combined experience in sourcing great Right to Buy mortgage deals for council tenants who want to buy their property from their local authority. We can even assist those who have a low or complex income, or those who have a lower than average credit score due to past debts or missed payments.

What is a Right to Buy mortgage?

The Right to Buy scheme has been in existence for decades and has helped thousands of tenants get onto the property ladder at a significantly lower cost than if they were to buy homes from private vendors and developers.

Right to Buy enables tenants in public sector properties to in England buy their home from the local council or housing association at a discounted rate, on affordable terms.

Similar schemes and mortgages are available in Wales and Northern Ireland, but the regulations are slightly different.

A Right to Buy mortgage is no different from a standard mortgage product except it is applied to a loan taken out alongside a Right to Buy purchase. All the usual criteria apply – but you will need to make sure you are a suitable candidate for the Right to Buy scheme before approaching a lender for a mortgage offer, as your eligibility will affect the property’s purchase price and therefore how much you’ll need to borrow.

Am I eligible for Right to Buy?

You can buy your council house using the Right to Buy scheme if:

• Your public sector property is your main or only residence
• Your property is self-contained, meaning it does not contain facilities that are shared with people outside of the same household
• You have a legal contract with your landlord
• You have been renting your home from a public sector body for at least three years (not necessarily three consecutive years)

What kind of discounts could I get?

Part of the appeal of the Right to Buy initiative is it offers tenants the opportunity to purchase their home at significantly discounted rates. In some cases, would-be homeowners could save as much as 70% on the market value of their property – although, as we are about to explain, the discount is capped.

Here’s how the figures break down for public sector houses:

• If you have been a tenant for at least three years under a public sector landlord, you will be eligible for a 35% discount
• If you have been a tenant for five years or longer, you will be eligible for an extra 1% discount for every year you have lived in the property. You can claim a maximum discount of 70%, which is currently capped to the value of £84,500 (and £112,300 in London)

And here’s what happens if you want to buy a flat:

• Remain as a tenant in the flat for three years, and you will be able to claim a 50% discount
• After five years, the discount you can receive will increase by 2% every year. As with houses, the discount is capped at 70% or £112,300 in London or £84,500 elsewhere in the UK, whichever is greater.

There are plenty of online Rent to Buy calculators that can help you work out roughly how much you can expect to get off the price of your property. Simply tell the calculator how many years you have been a council or housing association tenant, then enter your property’s value, its type, and its postcode, and you will be presented with estimated discounts.

Bear in mind that the results from these web-based calculators are estimates only, because the level of discount you receive may go up or down depending on the results of your formal valuation.

Discounts may also be reduced if your landlord has invested in maintaining or improving the property, especially if they have spent money on the property in the last 15 years. Discounts could be removed altogether if the cost of the work exceeds the property’s value.

How long will I have to live in my council property before I can buy it?

If you live in a house, you will need to have been occupying the property for a minimum of five years. If you are in a flat, this timeframe is reduced to just three years.

Can I purchase a Right to Buy property jointly, with somebody else?

You can buy your council home with your spouse, civil partner, or another joint tenant. You can also share your Right to Buy with up to 3 family members who have lived in the property in the last 12 months.

Can I get a Right to Buy mortgage?

If you qualify for the Right to Buy scheme, then you should be able to apply for a mortgage that meets your borrowing requirements, as long as you can fulfil the lender’s eligibility criteria. These will vary between mortgage providers, but generally speaking, you they will all look at:

Your income

The amount you earn – plus any other income you receive from government benefits, overtime payments, bonuses, holiday pay, pension payments and any separate investments – will be used to calculate how much you can afford to borrow.

Lenders will use income multiples to determine your mortgage ceiling. They will typically multiply your income by 4 or 5. So, if your annual income is £20,000 per year, and your lender chooses to use income multiples of 4, you will be offered £80,000 towards your purchase.

Of course, this is subject to you being able to prove the size and frequency of your income. If you are employed, you will need to provide the lender with recent wage slips so they can see how much you get paid every month. If you are self-employed, you will need to present at least 12 months’ worth of accounts that have been signed off by a chartered accountant, along with copies of your most recent SA302 forms if necessary, which provide details on your income and tax liabilities.

Your outgoings

Do you know how much you spend every month on essentials like utilities and groceries – and other ‘luxuries’, including social events and leisure activities? Lenders will want to see that, despite your monthly mortgage payments, you will have enough left in the bank to cover all your other expenses, with some to spare in case of emergencies. You will normally be asked to provide several months’ worth of bank statements so the mortgage company can review your expenditure.

Your debts

Similarly, mortgage providers will ask for more information on any outstanding debts that you may have, including credit card bills and student loans. They will use this total debt to calculate how much debt you have as a percentage of your total income (otherwise known as your debt-to-income ratio (DTI)). If you want to access better rates and a wider range of mortgage deals, your DTI needs to be as low as possible, so it’s worth clearing as many debts as you can before embarking on the mortgage application process. The easiest way to see all of your credit is by downloading a free credit report. We’ll go into more detail about bad credit Right to Buy mortgages later.

Your age

In the UK, you need to be at least 18 years old to apply for a mortgage of any kind, including a Right to Buy mortgage. Most lenders will require you to be under the age of 75 when your mortgage term eventually ends, but there are some more niche companies that are willing to consider cases where an individual or a couple are looking to purchase their council property later in life.

Your credit history

Regardless of the type of product you’re applying for, most lenders will want to see proof that you have been able to handle your cash responsibly in the past, and you haven’t defaulted on any previous credit agreements.

They won’t ask you directly for this information – rather, they will ask for copies of your credit reports, which list all of the credit accounts you have opened (or that have remained open) in the last six years, along with any missed payments, County Court Judgements (CCJs), individual voluntary agreements (IVAs), bankruptcies and other financial black marks that demonstrate you have had financial issues previously. The three main credit agencies (Experian, Equifax and TransUnion) each produce different versions of this report according to their own assessment criteria and assign you a credit score based on the data they have to hand. Lenders will normally request all three of these reports to gain a more accurate picture of your money management habits.

What if I don’t have a great credit score?

If you know that your credit reports hold evidence of missed payments or other financial issues from the last six years, it can sometimes make sense to hold off on applying for a mortgage until they have dropped away. (Black marks will disappear from your file after six years).

But if you can’t wait, it’s best to settle as many of your debts as possible and resolve any outstanding issues with your credit providers.

Browse more information on adverse credit mortgages, or check out our video for practical ways you can clean up your credit report and improve your credit score.

I’m on a low income – could the Right to Buy scheme still work for me?

Right to Buy gives most budding homeowners the chance to make significant savings on their purchase. Naturally, this opens the scheme up to people who are on a comparatively low income and who would struggle to get a mortgage if they could not access exclusive discounts from local councils and housing associations.

If your income is limited, speak to one of our mortgage advisors today and we will make tailored recommendations based on your individual circumstances.

What if I’m on benefits?

Being reliant on state benefits will not affect your legal right to purchase your council property under the Right to Buy scheme. Lenders will be more concerned as to the frequency of your benefits payments, and whether they will be able to cover your monthly mortgage payments and other outgoings. (They will also want to make sure you meet all the other criteria, as discussed above).

However, when weighing up the pros and cons of buying your own house or flat, you will need to bear in mind that you will no longer be eligible for housing benefit if you become a homeowner yourself.

How do I apply for Right to Buy?

To exercise your Right to Buy, you need to start by filling in an RTB1 notice. This can be from the Gov.uk website. Click here to download a RTB1 Notice. It’s the document that states your intention to purchase your home, and it needs to be sent directly to your landlord.

He or she will then need to let you know whether they will allow you to purchase the property. They must do this within 4 weeks (8 weeks if they have been your landlord for less than 3 years). If they refuse your request, they must explain their decision. If they are happy to proceed, they will send you an offer within 8 weeks if the property is freehold, and 12 weeks if it is leasehold.

Their offer will contain:

• The price your landlord believes you should pay for the property, including any discounts that have been calculated
• A full description of the property and the land that is included in the sale price
• A breakdown of any existing structural issues (subsidence, for example)
• More information on the service charges that you will need to pay for the first 5 years of owning the property, if it is a flat or maisonette

From the point that you receive the offer, you will have 12 weeks to decide whether you want to continue with your purchase. If you believe that your landlord’s valuation of the property is too high, you can ask for them to arrange a separate assessment from one of HMRC’s independent valuers before accepting the price. You can also pull out of the sale at any time.

Once the application reaches the next stage, your landlord is required by law to complete certain parts of the process within specific timeframes. If he or she fails to comply, you can fill out an ‘Initial notice of delay’ form (otherwise known as an RTB6) and effectively chase them for a response; if there are further unjustifiable delays, you could be eligible to request that the sale price is reduced further.

If your application isn’t accepted, you can appeal the council’s decision.

What are the costs involved in purchasing a property through the Right to Buy scheme?

The costs involved in purchasing a property are generally the same, regardless of whether you are exercising your Right to Buy or you are buying your home using normal means. Click here for a quick video breaking down the costs.

Mortgage costs

If you need to use a mortgage to fund your purchase, you will need to consider the costs of arranging your finance deal, as well as budget for the ongoing monthly repayments.

Most lenders will charge booking or arrangement fees, and some will ask you to cover the cost of your initial valuation. If you use a professional mortgage advisor to help you navigate your funding options, you might have to pay a broker fee. (Contact the team here at CLS Money for more information on our charging structure).

Survey costs

You may want to arrange for a survey to be carried out on the property to make sure it is structurally sound and free from any major maintenance issues.

The survey’s price will depend on how in-depth you want it to be. Basic Condition Reports are the cheapest option, and the best choice if you’re looking to buy a conventional property that’s in good condition; RICS Homebuyer Reports are more thorough and can help you identify problems that need repairing straightaway; and full building or structural surveys will provide you with information on a wider range of potential defects, along with recommendations as to how you can repair or maintain the property. Contact a member of our team here at CLS Money for a free no-obligation quote on surveys for your property.

Stamp duty

If, after all discounts have been considered, the price of your property exceeds £125,000, you will need to pay stamp duty on your purchase. (This only applies in England – the tax rules are a little bit different in Wales and Scotland.)

The rate you pay will depend on which of the below price bands the property falls into:

• Less than £125,000 – 0%
• £125,001 to £250,000 – 2%
• £250,001 to £925,000 – 5%
• £925,001 to £1,500,000 – 10%
• Over £1,500,000 – 12%

Ask your solicitor or mortgage broker to confirm stamp duty costs at the very start of your application process, so you know exactly how much you need to set aside and there are no nasty surprises further down the line.

Buildings, contents and protection insurance

When you own your own home, you are not only responsible for insuring its contents – you need to take out adequate cover for the building itself, too. You should also look into life insurance, income protection insurance and/or critical illness cover, which will ensure that you can continue making your mortgage repayments if you are ill, if you cannot work, or if you pass away.

Ongoing repairs and maintenance

Under a standard rental agreement, your landlord will be responsible for ensuring your property is a safe, secure place to live. But you will need to arrange any necessary repair and maintenance work when you become the official owner of the property. The amount you can expect to pay for these works will depend on the age and condition of your home.

How long does it take from start to finish?

Purchasing a property via the Right to Buy scheme takes considerably longer than the standard conveyancing process. It can take between 9 and 12 months from your initial enquiry through to completion.

The time it takes to purchase your home will also depend on how quickly you can find the right mortgage, and whether there are any delays with the mortgaging process. Using a mortgage advisor can help you keep time scales to a minimum.

Why do I need a specialist Right to Buy mortgage broker?

It’s not impossible to arrange a mortgage yourself. But it will involve finding the right online mortgage calculators, using multiple comparison tools, to not only find but then also compare a huge selection of products on offer from different lenders. It's more than likely that you will not be eligible for all of these products, resulting in wasted time spent with lenders who won't accept your application and more importantly you will have un-necessary credit check, these have negative effects to your credit score - Limiting the available lenders even further!

This is why there are several benefits to enlisting the help of a mortgage broker with specific experience in Right to Buy purchases:

• You will be able to lean on your advisor at every stage of the process. During your initial consultation, they will provide you with more information on the Right to Buy scheme, and (hopefully!) confirm that you are eligible to purchase your council house or flat.
• Your broker will have access to a wider range of mortgage products (as long as they work with the whole of the market and aren’t beholden to a select few banks and building societies). They will be able to introduce you to deals that you may never have come across yourself, and possibly even arrangements that provide better interest rates and more flexible terms than you were expecting.
• They will know which lenders work to more accommodating eligibility criteria for applicants with low income or complex income structures, and/or a history of bad credit. Approaching the right lender at the right time will reduce the chance of your application being rejected.
• They can guide you through the entire Right to Buy process, assisting you with the paperwork and liaising with other third parties to make sure your mortgage application – and indeed your purchase – runs as smoothly as possible.
• They will have worked with many Right to Buy customers in the past, and so will have a strong practical knowledge of how everything works. They will be able to answer all your questions quickly and accurately, and they will help you ride out any unexpected bumps in the road.

Can I buy a council house via Right to Buy if I already have a mortgage?

No, because the scheme is designed exclusively for tenants who are going to use the property as their primary and only residence. However, there is nothing stopping you from purchasing a second home and arranging a separate mortgage after you have bought your council house or flat.

Can I get an interest-only Right to Buy mortgage?

Most lenders will only offer you a Right to Buy mortgage on a repayment basis, which means that every time you make a payment, a certain percentage will go towards clearing the loan.

It’s not impossible to find interest only Right to Buy mortgages, but to be eligible for this sort of deal, you will normally need to prove that you have a separate income or investment strategy that will generate the money you need to pay off the loan in full at the end of the mortgage term.

Can I get a Buy to Let (BTL) mortgage on a Right to Buy property?

You cannot purchase your council property with the intention of renting it out to new tenants after the sale – which means you cannot organise a specialist Buy to Let mortgage to support this arrangement.

However, you can remortgage into a Buy to Let agreement and start letting out your house or flat five years after taking out your residential mortgage, as long as you are not planning to live in the property yourself.

What if I want or need to sell my property?

Hopefully, you are purchasing your property with the intention of living in it for some time or turning it into a viable Buy to Let investment further down the line.

If for whatever reason you need to sell up and move on within the first 5 years of being a homeowner, you may need to pay back some or all of the discount you enjoyed on the purchase price to the landlord. (After 5 years have passed, you can sell the property without having to repay any of the discount.) This is known as the pre-emption period, because technically the landlord still has a legal charge on the property.

If you sell within 10 years, you will need to give the council or housing association first refusal before putting it on the open market. They are not obliged to buy it back, but they must have the opportunity to put in an offer before anybody else.

How do I remortgage a Right to Buy purchase?

In theory, you can remortgage your property at any time. However, if you are searching for a remortgage deal while you are still in the 5 year pre emption period, you may struggle to find a lender that will let you refinance to borrow additional money and raise capital for home improvements or other large purchases.

If you are outside of the pre-emption period, you will need to follow the usual remortgaging procedure, taking into consideration any early repayment or exit fees that may be payable when you switch between products and/or providers.

You can learn more about the standard remortgaging process by clicking here.

Your Right to Buy checklist

Want to purchase your council house or flat using the government’s Right to Buy scheme? Here’s what you’ll need to do:

• Contact one of our Right to Buy mortgage advisors straightaway to talk through your options and find out whether you are eligible
• Work out how much of a discount you are likely to receive on the property’s normal purchase price, based on the length of your tenancy, the condition of the property, and whether it has benefited from renovations or repairs in the last few years
• Review your finances to see if you could comfortably keep up with your mortgage repayments and cover all the other costs involved in purchasing and maintaining your own home
• Start the conveyancing process by downloading and completing your RTB1 notice and sending it directly to your landlord
• Prepare a strong mortgage application by sourcing all the documents you need to supply to the lender, downloading your credit report and taking steps to clear up your credit profile if needs be

When it comes to exercising your Right to Buy, a professional mortgage broker can provide invaluable support.

Applying for the Right to Buy is normally a simple and straightforward process, as long as your landlord is happy for you to purchase the property in the first place. But it takes time, patience and specialist knowledge to find the best possible mortgage deal to finance your new home.

Our mortgage advisors have many years’ experience in guiding customers through their Right to Buy application – and, crucially, we know which lenders are more likely to offer funds to tenants who want to become homeowners. Because we have access to the whole of the market, we’re not limited to the small pool of deals that’s typically available from High street names; we can seek out the smaller niche lenders that specialise in financing Right to Buy purchases and are perhaps more willing to take a view on your circumstances if you are on a low income or if you have an undesirable credit history.

We can also help you navigate the Right to Buy process so that there are minimal delays and you complete on your purchase as quickly as possible.

Contact CLS Money today to get free advice from one of our friendly brokers. We’re open 7 days a week from 8am to 8pm, so can chat in the evenings or at the weekend if this works best for you.