This chapter draws attention to the help you can receive from your local council or housing association if you wish to become a property owner with information about:
- The Right To Buy scheme
- The Right to Acquire scheme
- Your landlord’s offer for Right to Buy/Acquire
- What to do if you disagree with your landlord’s offer
- Re-selling Right to Buy/Acquire properties
- Mortgages for Right to Buy/Acquire properties
- Pros and cons of Right to Buy/Acquire schemes
- Shared ownership/equity schemes
- Advantages and disadvantages of shared ownership schemes
The Right to Buy and Right to Acquire schemes
Although most people associate the Right to Buy scheme with the years of Thatcher’s premiership (when it started in 1980), the Right to Buy scheme continues today. Recent legislation plans to make it easier for more tenants of housing associations to purchase their properties on the same basis under the Right to Acquire scheme. In this chapter, we’ll be looking at these two schemes: what they are, who’s eligible, what discounts are available on properties, how to apply, the possible difficulties of re-selling and getting a mortgage and their pros and cons.
To conclude this chapter we’ll also be explaining shared ownership schemes on offer in the UK: what they are, who’s eligible, how to apply before considering what advantages and disadvantages you must weigh up before committing yourself to a mortgage for a shared ownership property.
What is Right to Buy?
Dating back to the Finance Act of 1980, the Right to Buy scheme gives tenants of council houses the opportunity to purchase their own home as long as they meet certain criteria. They’re also eligible for discounts on its market price depending on a number of factors. This discount is in recognition of the rent they’ve paid over the years and increases up to a certain limit.
The Right to Buy scheme gives tenants of council houses the opportunity to purchase their own home.
Who’s eligible for Right to Buy?
You’re eligible for this scheme if the property is your only/main home and it’s self-contained. You must be a secure tenant and should have been a public sector tenant for at least 3 years (although not necessarily 3 years in a row).
Questions on home purchase schemes
The help-to-buy mortgage, launched on April 1, 2013, which will remain available until 2020, is in effect an equity loan scheme. It is available to both first time buyers and homemovers. It is, however, limited to only new-build homes. Under this scheme, the buyer is only required to raise 5% of total property value as deposit down payment.
Housing associations provide shared ownership homes in the United Kingdom. These schemes work by offering first time buyers a part, or share, of the property ownership. A mortgage would be required to buy the share of the property, however, similar to the government’s help-to-buy scheme, a mortgage can be taken out with a smaller than average deposit.
Low cost home ownership, also referred to as affordable home ownership, or shared ownership (part-buy, part-rent) is based on shared equity. It is aimed at helping those who are only able to purchase part of their home to start with and assist them in beginning to build their own equity. There are a number of schemes available to help individuals buy an affordable home, in combination with different types of mortgages.
What discounts are available for Right to Buy?
If you qualify for this scheme, you’re entitled to a discount on the market value of the property up to a maximum (from April 2017) of £78,600 in England and £104,900 in London or 70% of its market value (whichever is the lowest). The amount of the discount increases every year to keep pace with the CPI (Consumer Price Index). The discount is based on how long you’ve been a tenant, the type of property you rent (house or flat) and its value. The discount will be smaller if you’ve used Right to Buy in the past and a proportion will have to be repaid if you sell the house within 5 years of buying it.
How to apply for Right to Buy
If you wish to apply for the Right to Buy scheme, you should fill in a Right to Buy application form (RTB1 notice) and send it to your landlord. They must reply within 4 weeks (or 8 weeks if they’ve been your landlord for less than 3 years). If they refuse your application, they must give a reason. If they agree, they must send you an offer within 8 weeks of their agreement (for freehold properties) or 12 weeks (leasehold properties).
What is the Right to Acquire?
Similar to the Right to Buy scheme, the Right to Acquire scheme permits tenants of housing associations to purchase their property at a discount. Tenants of housing associations aren’t eligible to apply for Right to Buy since they have assured tenancy rather than secure tenancy.
Who’s eligible for the Right to Acquire scheme?
To be entitled to apply for this initiative, you should have been a tenant of social housing for at least 3 years. You aren’t eligible if you’re facing bankruptcy or eviction proceedings.
For your property to be eligible, it must be self-contained and be your only/main home and your social landlord must be registered with the Homes & Communities Agency. Apart from these restrictions, not all properties are eligible for this scheme. Your home must have been built or bought by your housing association after March 1997 or have been transferred from the local council to the housing association after March 1997. It’s possible for these criteria to be relaxed in light of the government’s plan for more tenants to become eligible for this scheme.
Right to Buy permits tenants to buy their council property at a discount depending on how long they’ve been renting, the type of property and its market value.
Applicants for the Right to Buy initiative must have been living in public sector housing for a minimum of 3 years and must apply to their landlord.
Right to Acquire is a similar scheme to Right to Buy but is aimed at housing association tenants.
Right to Acquire tenants must have been renting for at least 3 years and their property must meet the scheme’s eligibility criteria.
Discounts for the Right to Acquire initiative
The discounts for this scheme vary from £9,000 to £16,000 depending on where you live in the UK. This discount will be reduced if you’ve purchased property with the Right to Buy/Acquire scheme in the past.
How to apply for the Right to Acquire scheme
If you wish to purchase your home from your social landlord, you should complete the Right to Acquire application form and send it to your landlord. They must reply to you with their answer within 4 weeks and if they refuse, you have no right of appeal. They might offer you a choice of buying another empty property but you don’t have to accept.
Your social landlord must respond to your Right to Acquire application within 4 weeks and if they refuse, you have no right of appeal.
Your landlord’s offer for Right to Buy/Acquire
If your social landlord agrees to your purchase of your home, they’ll send you an offer (or a Section 125 Notice). This will notify you of the price of the property and how it was calculated; your discount and how it was worked out; a description of the property and any land included in the sale; any known problems with the structure and (for flats only) estimates of any service charges for the first 5 years.
You have 12 weeks to decide if you still wish to continue with the sale and you’ll be sent reminders if you don’t reply. If you change your mind, you can continue to rent.
What to do if you disagree with your landlord’s offer
You might feel that your landlord has assessed the market value of your home as too high. In this situation, you should write within 3 months of receiving the offer and ask for an independent evaluation. This will be carried out completely free of charge by a district valuer from HMRC who will visit your home and decide whether your landlord’s price is fair. You have 12 weeks to accept the decision or could choose to pull out of the sale.
Re-selling a Right to Buy/Acquire property
If you decide to sell your home within 5 years of its purchase, you’re expected to pay back the discount you received. How much you must give back depends on how soon you re-sell. There’s a sliding scale from repaying the total discount in the first year to giving back 20% if you sell your home after 5 years. This repayment will be based on the price when you sell it rather than the price you paid for it.
If you choose to sell the property within 10 years, your local council or social landlord has the right to first refusal. They have 8 weeks to notify you of their intention to buy it before you can put the property on the open market. If you can’t come to an agreement on a fair price, a district valuer from HMRC will make the final decision.
Can Right to Buy/Acquire properties be bought by 2 people?
Yes and the discount will be awarded according to who has the longest tenancy. Properties can also be bought with up to 3 family members who have lived with you for the past 12 months.
What is the Cost Floor Rule?
The discount might be capped by the Cost Floor rule, which is the amount of money the landlord may claim back for repairs and maintenance of the property over the previous 10-15 years.
How many people have bought under the Right to Buy schemes?
It’s estimated that 2.5 million tenants have bought their homes since October 1980. At its highest levels (1982-3), 167,000 council houses were sold while the lowest take-up rate was in 2013-14 when only 15,000 tenants took advantage of the scheme.
What happens if my application to buy is delayed?
Your landlord has strict time limits to complete your application otherwise you could be reimbursed with the rent you’ve paid in the interim (which will be taken off the final purchase price).
Mortgages for Right to Buy/Acquire properties
When applying for mortgages, some lenders will consider the discount in lieu of a deposit since it effectively increases your equity in the property. However, you may have to shop around to find a mortgage provider who will accept your application. You may have to consult a lender who specialises in these types of purchase.
Discounts for the Right to Acquire depend where you live in the UK and you should apply to your landlord.
If your landlord agrees to the sale, they’ll notify you of your home’s market value and details of the property.
If you think your landlord’s offer is too low, a HMRC district valuer will set a price.
There are certain restrictions when you wish to re-sell property bought under Right to Buy/Acquire initiatives and you may have to consult a specialist mortgage provider.
Pros and cons of Right to Buy schemes
Many people decide to buy a home since they consider the years of paying rent a total waste as at the end of their tenancy, they have nothing to show for it. The beauty of these Right to Buy schemes is that your years of paying rent aren’t wasted as you receive a discount on the value of your home. Another advantage of Right to Buy initiatives is that you don’t have to go through the upheaval of moving house and getting to know a new area. If you’ve always lived in the same neighbourhood, buying your home means you don’t have to leave your support network behind.
How many times have you heard house buyers complain that they bought a house not realising that the traffic was so noisy or that they later discovered structural problems? Your house holds no surprises for you as you’ve already lived there for years and you know exactly what you’re getting beforehand.
Often people buy property because they want to move to a better area. The main disadvantage for people in Right to Buy schemes is that they must stay in the same place – or at least for the first 5 years. Only you can decide if your area is one where you’d be happy to live for years.
Shared equity or shared ownership schemes
What are shared equity schemes?
Shared equity schemes give you the opportunity to part-buy and part-rent property and are aimed at people who don’t earn enough money to purchase outright. Your share of your home can be anything from 25% to 75% of its value and once you own 75%, you don’t have to pay rent on the rest. The majority of available property is new-built although you may find some which is being resold by a housing association. Also, homes under this scheme are sold on a leasehold basis only.
Who’s eligible for shared ownership?
Criteria differ slightly for the countries of Great Britain since housing became a devolved issue but to be eligible in England, you must be a first-time buyer or used to own a home but can no longer afford to; you must have a combined income of £80,000 (or £90,000 in London) and you don’t necessarily have to be renting from a council or housing association.
Applying for shared ownership schemes
You should speak to the Housing team in your local council or housing association to see if there’s a scheme running in your area and to check your eligibility. The website of the First Steps for London has a variety of properties on offer, many of which are shared ownership re-sales. Visit ownyourhome.gov.uk for details of homes in the capital.
There are a number of advantages and disadvantages to consider with Right to Buy schemes.
Shared ownership schemes permit home buyers to part-rent and part-buy a property even if they can’t afford to buy outright.
To be eligible for shared ownership, you should be a first-time buyer and earn less than £80,000 a year.
You should apply to your local council or housing association to see if there’s a scheme in your area or if there are properties up for re-sale.
Advantages of shared ownership schemes
These shared equity schemes are an ideal way to get your foot on the property ladder. Stair-casing permits you to buy further shares of the property as your finances improve. However, if it’s your intention to stair-case in the future, you should make sure you know how the scheme works and what limitations there are. For example, are there restrictions about how many times you can add to your initial share? Also, you should bear in mind that future shares are bought at the market price when you buy and that re-mortgaging makes you liable for arrangement fees again.
Disadvantages of shared ownership schemes
One drawback of shared equity schemes is that you may be limited in where you can buy property since there may not be a scheme in your area. Going further away might increase your commuting costs. Also, not all lenders provide a mortgage for such schemes so you might have to shop around. As these schemes are only sold on a leasehold basis, you could be liable for a monthly service charge.
Although it’s your property, some local authorities restrict how much you’re able to make changes to your home without their permission. If you’re planning to re-sell the property and move on as soon as you’ve increased your equity, you should be aware that there might be restrictions about who you can sell it to.
Finally, there are legal pitfalls for shared ownership. It’s quite possible to be evicted for non-payment of rent even if you’re up-to-date with your mortgage repayments. In case of eviction, you’d risk losing all of the money you’ve spent on its purchase without right of appeal.
How will the extension of the Right to Acquire affect the number of properties for sale?
At the moment, 500,000 housing association tenants are eligible to buy their home and the National Housing Federation estimates 15-35% of them are both eligible to buy and could afford it. If the scheme is extended, it’d mean another 800,000 tenants would become eligible for this initiative.
Where can I find out about shared ownership schemes in my area?
You should go to the website sharetobuy.com and enter your town/city to see if there are schemes in your area or you could contact your local housing association to see if there are any re-sales available.
What is the typical buyer of shared ownership property?
According to research carried out by the Council of Mortgage Lenders in October 2016, 90% of people in shared ownership schemes are first-time buyers and 36% are dual-income households.
How many shared ownership properties are put up for sale?
The Council of Mortgage Lenders found that one third of properties on the market are re-sales while research by Cambridge University in 2012 found that such buyers are less mobile that outright owners since they’re put off by the associated costs of stair-casing and re-mortgaging.
How many shared ownership properties are there?
Between 2010-2015, 41,000 shared ownership properties were built while a further 135,000 are due to be built before 2020.