Right to Buy Mortgages

A Comprehensive Guide to Right to Buy Mortgages in the UK

For individuals residing in council properties, the prospect of transitioning from a tenant to a homeowner is an enticing possibility. The UK government’s Right to Buy scheme provides a viable route to achieving this transformation in just a few months, often as swiftly as eight weeks. Homeownership not only offers a sense of stability but also holds the promise of improved financial security. 

Many aspiring homeowners, therefore, look to purchase their council homes rather than continuing to rent from the public sector. The key question then becomes: Could you truly benefit from acquiring your council property? And can you sustain the financial commitments of a Right to Buy mortgage over the long term?

Understanding The Right to Buy Mortgages

The Right to Buy scheme, a longstanding initiative, has empowered countless tenants to step onto the property ladder at a significantly reduced cost compared to private market purchases. It enables tenants in public sector properties in England to purchase their homes from the local council or housing association at a discounted rate, promoting affordable homeownership. While similar schemes and mortgages are available in Wales and Northern Ireland, the regulations vary slightly.

A Right to Buy mortgage essentially mirrors a standard mortgage product, but it is tailored for a loan acquired in conjunction with a Right to Buy purchase. All conventional criteria apply, but it’s imperative to establish eligibility for the Right to Buy scheme before approaching a lender, as it profoundly affects the property’s purchase price and, consequently, the borrowing amount.

Who Qualifies for the Right to Buy Scheme?

To qualify for the Right to Buy scheme, certain criteria must be met:

• The property must be your primary or sole residence within the public sector.
• The property should be self-contained, lacking shared facilities with individuals outside the household.
• A legal contract with your landlord is necessary.
• You should have been renting from a public sector body for at least three years, not necessarily consecutively.

Discounts and Qualifying Periods

The Right to Buy initiative holds appeal by offering substantial discounts on the market value of the property. The discounts are determined by the duration of tenancy:

• A tenancy of at least three years entitles a 35% discount.
• For tenancies lasting five years or more, an additional 1% discount per year is applicable, reaching a maximum discount of 70%. The current cap is £84,500 (and £112,300 in London).
• In the case of flats, a 50% discount can be claimed after three years of tenancy, increasing by 2% annually after five years, capped at 70% or £112,300 in London or £84,500 elsewhere in the UK.

What is the Minimum Occupancy Duration Required for Right to Buy?

For houses, a minimum occupancy duration of five years is required before purchasing. For flats, the requirement is reduced to three years.

Can You Make a Joint Purchase through the Right to Buy Scheme?

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

How Do I Apply for a Right to Buy Mortgage and What’s Involved?

Once you qualify for the Right to Buy scheme, you can apply for a mortgage that meets your borrowing needs, provided you meet the lender’s eligibility criteria. Key factors considered by lenders include:

• Income: Your total income, including government benefits, overtime payments, bonuses, etc., influences the amount you can borrow. Lenders use income multiples to determine your mortgage ceiling.
• Outgoings: Lenders review your monthly expenses, ensuring you have sufficient funds to cover other essentials and emergencies.
• Debts: Outstanding debts, such as credit card bills and student loans, are considered in relation to your income, affecting your debt-to-income ratio.
• Age: You must be at least 18 years old to apply for a mortgage. Most lenders require you to be under 75 when the mortgage term ends.
• Credit History: A responsible financial history without defaults on previous credit agreements is crucial for mortgage approval.

What Is The Application Process for Right to Buy?

To exercise your Right to Buy, start by filling out an RTB1 notice from the Gov.uk website, stating your intention to purchase the property. Send this notice directly to your landlord, who must respond within a stipulated period.

What Are the Costs Involved in Right to Buy?

The costs associated with purchasing a property through the Right to Buy scheme are akin to those in a standard purchase. They include mortgage costs, survey expenses, and stamp duty, if applicable based on the property’s price.

What is The Role of a Specialist Right to Buy Mortgage Broker?

Engaging a specialized mortgage broker with experience in Right to Buy purchases can be highly beneficial. They offer:

• Guidance through the Right to Buy process and paperwork.
• Access to a broader range of mortgage products and potential better deals.
• Knowledge of lenders with flexible eligibility criteria, particularly for low income or individuals with a history of bad credit.
• Expertise in dealing with Right to Buy customers, ensuring a smooth application and purchase process.

The Importance of Professional Support

While it’s possible to navigate the Right to Buy process independently, the expertise and support of a mortgage broker specializing in Right to Buy can significantly streamline and enhance the experience. They can provide in-depth information about the Right to Buy scheme, confirm eligibility, and present a broader spectrum of mortgage options than one might find individually. This includes potential deals with more favorable interest rates and flexible terms.

Moreover, a specialized broker understands which lenders are more accommodating to unique circumstances, such as low income or a less-than-ideal credit history. They can guide you through the entire process, assist with paperwork, and liaise with various parties involved, ensuring a smoother mortgage application and purchase.

Choosing the Right to Buy path is an impactful financial decision that requires careful consideration and planning. Seeking guidance from a professional who understands the intricacies of the Right to Buy scheme and the mortgage landscape can greatly optimize your chances of successfully becoming a homeowner.

In the UK, the Right to Buy scheme offers a viable opportunity for council property tenants to transition from renting to homeownership, often with significant discounts on the property’s market value. Understanding the scheme’s eligibility criteria, discount structures, and the role of a mortgage broker is essential in making an informed decision.