Right to Buy Mortgage Guide

Right to buy explained

First introduced in 1980, the Right to Buy scheme is aimed at secure tenants of local authorities (councils) and those assured tenants of registered social landlords/housing associations who previously held secure tenancies with local authorities. It is open to virtually any secure tenant who can afford to buy. Tenants must have at least two years tenancy with a public sector body (or five years in the case of new public sector tenants who took up their tenancies after 18 January 2005).

Some properties are exempt from the Right to Buy. These include dwellings occupied in connection with a tenant's employment, and housing specially provided for older people and (in certain cases) people with disabilities.

The Government is totally committed to the principle of the Right to Buy scheme, first introduced in 1980. It contributes to the Government's aim of a decent home for all, offering everyone the opportunity of a decent home and so promote social cohesion, well being and self-dependence.

The Right to Buy Scheme has helped 1.6 million council tenants in England to realise their aspirations to own their homes. In many cases, it has encouraged more affluent tenants to remain in the neighbourhoods they have lived in for many years, helping to create stable, mixed income communities.

This right to buy scheme enables local authority tenants of two years to buy their homes at a discount (or five years in the case of new public sector tenants who took up their tenancies after 18 January 2005). It is targeted at well-established public tenants, with the discount increasing in rough proportion to the years they have been paying rent.

However the discounts available are subject to the maximum limits available in the area the tenant lives.

Most Right to Buy sales are of local authority properties. Since the introduction of RTB, in excess of £46 billion has been received as a result of the sales of local authority dwellings. These funds have been used to repay debt and finance further capital expenditure.

The Right to Buy scheme is open to virtually any secure tenant who can afford to buy with the exception of dwellings occupied in connection with their employment and housing specially provided for older people and (in certain cases) people with disabilities.

How does the Right to Buy work?

You may have the Right to Buy if you are a secure tenant of:

• A district council; or
• A London Borough Council; or
• A non-charitable housing association or other registered social landlord
• a Housing Action Trust

You do not have the Right to Buy until you have spent at least 2 years as a public sector tenant (or 5 years in the case of new public sector tenants who take up their tenancies after 18 January 2005) and you are currently a tenant of a 'Right to Buy' landlord.

You will only be able to purchase under the right to buy scheme if your house or flat is a separate home and is your only home.

You cannot buy your home if a court makes a possession order which says that you must leave your home. Neither can you buy your home if you are an undischarged bankrupt, have a bankruptcy petition pending against you, or have made an arrangement with creditors (people you owe money to) and you still owe them money.

You may be able to exercise the Right to Buy jointly with members of your family who have lived with you for the past 12 months, or with someone who is a joint tenant with you.

Any land let together with your home (for example, gardens and garages) will usually be treated as part of your home.

Preserved Right to Buy

If you are an assured tenant of a registered social landlord, such as a housing association, in normal circumstances you do not have the Right to Buy.

However, if you were previously a secure tenant of a local authority and you became an assured tenant after your home was transferred to a registered social landlord, you may have what is known as the 'Preserved Right to Buy'. This only applies if you were living in your home at the date on which it was transferred. It can also apply if you then move to another property owned by the new landlord. But it does not apply if your landlord changes again.

The Preserved Right to Buy operates in a similar way to the normal Right to Buy. However, the cost floor (explained below - it reduces the discount available to take account of the cost of work previously done on the property by the landlord) includes works carried out over a longer period (15-16 years) and may include acquisition and build costs.

Maximum Discounts available under the Right to Buy

The maximum discounts available are as follows:-

• £38,000 in the South East (except if your home is in the local authority areas of: Chiltern, Epsom & Ewell, Hart, Oxford, Reading, Reigate & Banstead, Tonbridge & Malling, Vale of White Horse, Watford, West Berkshire where the maximum discount is £16,000);
• £34,000 in the Eastern Region (except if your home is in Watford where the maximum discount is £16,000);
• £30,000 in the South West;
• £26,000 in the North West and the West Midlands;
• £24,000 in the East Midlands and Yorkshire and the Humber;
• £22,000 in the North East;
• £16,000 in Wales;
• £16,000 in London (except if your home is in Barking and Dagenham or Havering where the maximum discount is £38,000);

Your landlord can tell you which discount limit applies to you

Repayment of discount

If you have bought your home under the Right to Buy, you can sell it whenever you like. But if you wish to sell within the 'discount repayment period' specified below you will usually have to repay some or all of the discount. The amount you repay will depend on when you made your application to buy.

If you applied for the Right to Buy before 18 January 2005 and sell within 3 years of buying your home.

If you sell within the first year after your purchase, the whole of the discount will have to be repaid. Two thirds must be repaid if you sell in the second year, and one third in the third year. After 3 years, you can sell without repaying any discount. The discount is the sum you actually received when you purchased your home.

If you apply for the Right to Buy from 18 January 2005 onwards and sell within 5 years of buying your home.

If you sell within the first year of purchase, the whole discount will have to be repaid. Four fifths must be repaid if you sell in the second year, three fifths in the third year, two fifths in the fourth year and one fifth in the fifth year. After 5 years, you can sell without repaying any discount. In addition, the amount of discount to be repaid if you sell within 5 years of purchase will be a percentage of the resale value of the property, disregarding the value of any improvements.

Certain sales or transfers are exempt from the requirement to repay discount, e.g. transfers between certain family members. In addition, if you would face hardship by having to repay discount, and your circumstances justify it, your landlord can decide not to ask you to pay some or all of what you owe.

From 18 January 2005, if in advance of your purchase, or within the 'discount repayment period' you enter into an agreement to transfer your property to a third party in the future, then this will trigger repayment of your discount. Discount repayment is triggered from the date that you enter into the agreement. So, for example, if you enter into such an agreement before you have bought the property or during the first year after buying, you will have to repay the full amount of discount you received.