Short on time – here’s the Bottom Line:
- You are eligible to buy your home if it’s your main residence after 3-5 years of being a tenant.
- The longer you have lived in your home the more discount you are eligible for up to a maximum discount of 70%.
- The maximum amount of discount is £84,200 [£112,300 in London]
- Nationwide Building Society offers a specific mortgage for Right To Buy tenants called a Right to Buy Mortgage.
- Brokers can also help you find a good mortgage deal and can be the best option too if you have a bad credit rating.
- With most mortgage lenders no deposit is required for Right to Buy tenants. However you will incur other fees like legal conveyancing fees etc.
- If you sell your home within 5 years you could have to repay some of the discount.
Right To Buy Eligibility
First things first you only have eligibility for the right to buy on your home, i.e the home you live in – often called your main residence. The good news is in May 2015 the eligibility was reduced from 5 years down to 3 years. So this means you now have only had to be a tenant for 3 years before you can apply to buy your home.
Your landlord however must be either the council, NHS Trust or housing association. Those 3 years don’t even have to be continuous or even in the home you are wishing to purchase.
The further good news is you don’t have to apply alone. You are able to make a joint application for the Right To Buy. For instance you could buy your home with:
- Someone who shares your tenancy
- Your spouse or civil partner
- Up to 3 family members. [These 3 family members must have lived with you for the [last 12 months. It must be their main home but they don’t have to be on your tenancy agreement.]
Right To Buy Discount
The maximum amount of discount that is available through the Right To Buy scheme is £84,200 for all properties in England and £112,300 in London.
The amount of discount you are eligible for does depend on 3 things:
- How long have you been a council tenant
- Whether you live in a flat or house
- The value of the property you want to buy on the open market
Council Flat Discount
70% is the maximum discount off the market value for council flats. The discount actually starts at 50% for those who have been council tenants for 3-5 years. But the great news is this percentage then increases at 2% each additional year you are a council tenant – up to a max of 70%. So that means at 3-5 years as a council tenant you are eligible for a 50% discount but at 13 years you are eligible for the full 70% discount!
Council House Discount
70% is the maximum discount available but this starts at 35%. If you have been a tenant for 3-5 years and discount increases at 1% for every year you are a council tenant. So at 3-5 years you are eligible for the 35% discount of market value and only at 35 years after that do you qualify for the full 70% discount.
Right To Buy Mortgage Lenders
A good number of lenders will offer Right To Buy Mortgages but one of the largest mortgage lenders in the UK is Nationwide Building Society. They have a specific mortgage for people with the Right To Buy and they call the mortgage ‘A Right To Buy Mortgage’.
Remember you can buy your home with just a ‘normal’ mortgage. You don’t need to take a mortgage with any special names relating to your right to buy.
To a lender, you are simply a customer who wishes to purchase a property. But you are a customer who has a sizable discount on the property. Mortgage lenders will often favour this as you require in mortgage terms, a lower loan to value [LTV].
For instance most buyers will have a 25% deposit or require 75% loan to the value of the property. The good news for you is you are eligible for a minimum of 35% discount on a council house and 50% on a council flat. So you might only require a mortgage for 50% of the value of the property, because of this, lenders will see you as a lower risk and be able to offer their best mortgages at the lowest rates!
Right To Buy Mortgage with Bad Credit
You may find you are unable to get a mortgage with a very poor credit rating. Due to the size of the discount you are eligible for on your home and therefore the lower LTV you require, most lenders should be able to provide you with a mortgage.
There are ways to improve your credit rating. Start doing this before you apply for a mortgage if you have a very poor credit rating. Using a mortgage broker could be an excellent idea as many specialise in mortgages for people with bad credit ratings. A mortgage with a bad credit rating will probably mean you’ll pay slightly more each month as the interest rates you are charged could be slightly higher, but not always. With a bad credit rating you absolutely still have options for Right To Buy mortgages.
Right To Buy Mortgage Broker
One of the best things you can do is get a mortgage broker. An independent broker is able to search the whole market and provide you with the best deals. As you are eligible for a discount under the Right To Buy Scheme you will probably have good equity in the property. This is good news.
So for example if you wish to purchase your home and its value is £200,000 and you are eligible for a 50% discount then you only require a mortgage of £100,000.
Right To Buy Mortgage Deposit
Do I need a deposit and how big?
No. Most lenders will not require you to have a deposit of any kind. Due to the discount you are eligible for on your home this kind of acts as the deposit already.
This is one of the benefits of the right to buy scheme. Whereas most people are required to save prehaps a 5-25% deposit as a minimum, if eligible you will already have a 35% ‘deposit’ on your council house and a 50% ‘deposit’ on a council flat!
Lenders for Right to Buy mortgages will, as a rule of thumb, lend 4-5 times your annual salary. So if you earn £20,000 a year you could expect to be able to get a mortgage of circa £80,000-£100,000. If there are two people applying for a mortgage they can take both your incomes into consideration. So if you both earnt £20,000 per annum and so had a combined yearly income of £40,000 then you could be lent around £160,000-£200,000.
Lenders generally require 3 months wages slip from your current employer and 3 months of bank statements.
You will more than likely have to provide your last 2 years of accounts. A tax receipt or a certificate of earning from an accountant are also options. Other requirements often include 3 months of bank statements.
Other Home Buying Costs
Purchasing your home will come with other costs to bear in mind. These costs could be stamp duty land tax [SDLT], legal fees from a solicitor often called conveyancing fees plus disbursements costs, just to name three.
Conveyancing Fees and Disbursement Costs are on average £2000-3000 for freehold properties and slightly higher for leasehold properties as there is sometimes extra paperwork.
5 Top Tips for Right to Buy Mortgages
- Ensure there is no gambling within your bank statements you provide to the lender
- Check your credit rating to make sure it’s as good as possible
- Pay all your bills on time
- Stay out your overdraft
- Don’t apply for any credit [eg loans] before applying for a mortgage
Right To Buy Process
How do you apply for your Right to Buy discount?
If you are a qualifying tenant they you are required to fill out the ‘RTB1 application form’
Where do you send the complete form?
You then need to send in your completed application to your landlord who will have 4-8 weeks to tell you if you can buy your home.
Once your landlord has accepted they will send you an offer through something called a Section 125 notice. This notice contains the valuation of the property and includes the amount you will have to pay for the property.
What do you do next?
After receiving your Section 125 Notice you can accept the offer. If you don’t want to accept the offer you can just carry on renting your home as usual.
Can I sell my Ex-Council home?
You can but certain restrictions could apply. If you have purchased your home through the Right To Buy housing association you could have to repay some or all of the discount if you sell your property within 5 years.
The discount repayments are related to how long you have owned the property and are laid out below:
Under 12 months = ALL of the discount
1-2 years = 80% of the discount
2-3 years = 60% of the discount
3-4 years = 40% of the discount
4-5 years = 20% of the discount
5+ years = 0% of the discount
There is another factor if you want to sell your council home, which is the current market value.
For instance if your home was valued at £100,000 when you bought it and you received a discount of £40,000 [i.e 40%]. If you came to sell it after 18 months and it had gone up in value to say £120,000, you would have to pay 40% of this value. So 40% of £120,000 is £48,000 so as you wanted to sell it in your second year you’d have to repay 80% of that £48,000 which is £38,400.