What is the right to buy scheme?

 

The right to buy scheme helps eligible council and housing association residents in England buy their home with a discount of up to £38,000 or 70% of the total value of your home, whichever is lower. This is an option only open to certain people and there are certain criteria that must be met before candidates are considered.

 

If you want to check you eligibility you can do so on the Right to Buy website. The general things the council look for when considering applicants are whether:

 

• it’s your own or main home
• it’s self contained
• you’re a secured tenant
• you’ve had a public sector landlord (for example, a council, housing association or NHS trust) for 3 years – it does not have to be 3 years in a row.

 

The discounts

 

The maximum discount varies across the country, with London having the lowest discount of £16,000 (other than Barking and Dagenham and Havering), and the South East with the highest discount of £38,000, other than a few exceptions.

However, if you applied to buy your home before 21st November 2024, then the maximum discount you can get is whichever of the following is lower:

 

• 70% of the value of your property
• £136,400 if your home is in a London borough
• £102,400 if your home is outside London

 

Right to buy saw significant reform in November 2024, with Housing Secretary Angela Rayner announcing a number of changes to both retain and increase the UK’s social housing stock in order to address the housing crisis. A further four changes have been proposed by Rayner as part of a consultation.

 

These include:

 

• Having to live in a house for more than three years to claim a discount
• Exempting newly built social homes from the scheme
• Forcing authorities to build a home for every one they sell
• Increasing the limit on when councils can reclaim the discounts if the a buyer sells the property from five years to 10 years

 

The discount is based on

 

• the type of property you’re buying – a flat or house
• the value of your home
• where you live
• how long you’ve been a tenant with a public sector landlord

 

If you’re buying with someone else, you count the years of whoever’s been a public sector tenant the longest.

 

You’ll usually have to repay some or all your discount if you sell your home within 5 years.

 

You might get a smaller discount if you’ve used Right to Buy in the past.

 

Obviously there are massive positives to this scheme and it can be a great shortcut to getting your feet firmly on the property ladder without worrying about the financial issues quite as much as not being involved in the scheme.

 

Some pros of the right to buy scheme

 

• It allows people who would normally never be able to afford to buy property to do so
• Owning property gives people increased financial security
• It gives people something to show after years of paying rent
• Having a mixture of owner occupiers and rented accommodation helps create a mixed communities
• The presence of economically active households reduces the social exclusion of an area
• If you own your own property you are more likely to look after it and value the community it is situated in.

 

The cons of the right to buy scheme:

 

• Stigma – properties bought on the scheme are likely to be in tower blocks or estates which means the appearance of them will negatively affect the financial inflation of the property
• Some mortgage lenders aren’t keen on ex-local authority property, especially high-rise tower blocks. So you’ll have less choice of mortgage products than if you bought another type of property.
• The local authority is likely to be the freeholder. This means it will have responsibility for the upkeep of the communal parts of the building. Flat owners (or leaseholders) will pay a service charge for this and also for “major works” which take place every few years.
• In an estate where some flats are still owned by the council and some by private owners, some local authority freeholders will hike the service charges to subsidise the council flats. Be warned – these bills can cripple you.
• This issue of extra bills and being a leaseholder is the focus of a recent case, where a man who purchased his home through the right to buy scheme now faces a titanic bill of £146,257 after Southwark council notified of mass refurbishments to the tower block where his flat lies.

 

The case in question:

 

Lloyd Onuoha, a 62 year old nurse, is the leaseholder of a flat in the Tustin estate in Peckham. He purchased the flat in 2004 using the right to buy scheme. Back then, the flat was valued at £93,000 – it’s worth about £250,000 now. In 2010, he moved out of the property and started letting it out, as it was not big enough for his growing family.

 

Southwark council is planning a major refurbishment of the Tustin estate. There will be new brickwork, concrete repairs, balcony and roof work, drainage improvements, window and door replacement, and asbestos removal. This comes at a heavy cost and Southwark council have reported that 22 leaseholders who own property on the estate have received heft bills, with 20 of them being issued bills of over £100,000.

 

Onuoha just cannot afford to pay this bill:

 

“The council has given us the option for it to buy the flat back. It’s more or less the only option – no one else will buy it with a £146,000 bill on the way,” he says.

 

“Another option is we move back there and the council would buy it back for 40% of the value of the flat. That’s terrible. How can anyone feel good about this? Even if they reduce the bill, it’s unlikely to be to anything reasonable – it would still be about £100,000 or something.”

 

Limited realistic options:

 

For these leaseholders, the council has offered to buy their home for 40% of its market value and offer them a secure tenancy. Another option for owner-occupiers is an interest-free loan for up to 72 months. But paying £146,257 over 72 months would mean monthly payments of £2,031 – unaffordable for most workers.

 

So, this is one story that shows how the right to buy scheme does not always go smoothly for those who choose to take it.

 

What does Lisa’s Law think of the right to buy scheme?

 

The main issue with this type of right to buy scheme is the property involved is usually a rather old building. As a tenant of a council property, one should also consider whether:

 

• the building is in a good condition
• how frequent has the council carried out repair work in the past (Mr Onuoha should have known it well because he had been a tenant for at least 2 years before the purchase)
• the material used i.e. is there cladding (cladding can hardly pass the insurance requirements nowadays. The freeholder often be requested to replace the cladding) whether all the materials meet the current legal requirements
• in the process of purchase whether the council has confirmed that they have the intention to serve Section 20 notice in the near future
• However, there is always a risk with purchasing a leasehold property. It can never be entirely risk free. For example, even the council can confirm they have no intention to serve notice yet there is always possibility that they change their mind overnight.

 

If the leaseholder does indeed received a repair demand which is extortionate, with all the other leaseholders they could request for a review. With no success, they can apply to the leasehold valuation tribunal if there is dispute.

 

Thinking of buying a property? Here are some things to be aware of:

 

A healthy credit score:

 

A high credit score will allow you access to the best mortgage deals. If you have a poor credit score the majority of lenders will see you as an unreliable investment and will refuse to do business with you. After all, they are looking out for themselves at the end of the day! There are a few agencies that you can use to check your credit score such as Experian, TransUnion, and Equifax. It is also better to have been using a credit card responsibly for at least 2 years before applying for a mortgage.

 

Know what you can afford:

 

Having a good idea of where you stand financially is key when trying to get on the property ladder. Having a definite budget will narrow down the types of areas you look into and will help you figure out how much money you should be putting away for your deposit in the lead up to purchasing your property. The bigger deposit you have the better rates you will receive on your monthly mortgage payments.

 

Deposits:

 

Generally speaking you will have to save up at least 5% of the house price for a deposit. If you can, try saving an even larger amount such as 15 to 25%. Depending on your credit history, the mortgage type, this will greatly improve your initial standing with mortgage lenders and will provide you with even more financial security.

 

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