Right-to-Buy Mortgage Advice
The basics of right-to-buy mortgages explained
When buying a property under the governments “right to buy” scheme there are several key differences to the mortgage process and lending rules.
Most lenders don’t have specific right-to-buy mortgage deals, so the rates available to you will normally be the same as any typical customer buying a home.
As the right-to-buy scheme enables you to buy the property at up to 70% discount of its market value the lender will in most cases consider this to be your deposit and will not require that you put in funds of your own.
Some lenders do require you to place a deposit down in addition to the discount though so care needs to be taken in the choice of lender. This may be the case especially with specialist lenders for people with some adverse credit history.
But many lenders do not accept this type of purchase at all so a good mortgage adviser will help you ensure you approach the right providers and ensure the mortgage gets fully agreed.
The right-to-buy scheme explained and eligibility requirements
You usually have a right-to-buy your home at a discounted purchase price if you lived in the home for the qualifying period, have not been declared or recently discharged from bankruptcy or have made agreements with creditors, and are a “secure tenant” of one of the qualifying landlords.
You may also have a right-to-buy known as “protected right-to-buy” where your properties ownership was transferred from a qualifying landlord to a housing association during your tenancy.
The scheme entitles you to discounts based on the length of your tenancy up to the lower of 70% of the property value or £84200 for homes outside London, and £112,300 for homes inside the London area.
If you buy under the scheme and then sell the home within a certain timeframe you may have to repay the discount from the sale proceeds.
Typical issues with ex-local authority properties
In most cases, the iconic post-war era council semi-detached or town-house will be relatively straightforward to mortgage if the area has seen enough sales to establish the market value and a good idea of future saleability.
Zoopla, Rightmove and Nethouseprices are good resources to check historic sales and if no data is available for the majority of properties in an estate or development this will likely indicate the majority are still council-owned properties and that arranging a mortgage may be more difficult.
Local authority flats and maisonettes have a complex set of issues though that effect which lenders can consider them.
Again, the market for the properties is a key factor, and if very few sales have taken place they can be more difficult. If you are looking at buying your council flat and very few sales have taken place in the block then real care will be needed with your choice of lender.
Blocks with a total of more than 4 Storeys may be outside many lenders criteria although high-rise blocks are potentially mortgageable it will greatly limit the choice of lenders.
High rise ex-local authority properties are much less desirable outside of London and these properties may have very limited options in terms of mortgages.
Many properties may also have what is known as “balcony access” a term which describes properties whose front door leads to a shared open-air balcony, like the Broadwater Farm estate in London.
Balcony access does not mean a property is impossible to mortgage, but the majority of lenders do not accept these properties (especially outside London), so an advisor such as ourselves will help you if your property has Balcony Access.
Many council blocks are also awaiting an “EWS1 assessment” where cladding systems have been installed in an overhaul and whilst this is pending the property may be difficult to mortgage at all.
Some local authority blocks will also be of a type of construction which is not suitable to mortgage at all.
In this instance only extremely expensive mortgages may be possible with interest rates that are more reflective of bridging finance with rates often over 7-8% even in today's very low-interest rate marketplace, making it questionable whether these properties are worth buying.
Contacting a local mortgage surveyor can be useful in these scenarios to see if they have experience with the block, and may be able to indicate their view on whether it is unsuitable for lending, but ultimately it can be a process of trial and error on such properties.
Issues with applicants on right-to-buy
Another common problem on right-to-buy applications is the need to vary the applicants from the right-to-buy agreement.
The right-to-buy agreement is usually made in the names of all long-term adult occupants of the property and this can be troublesome when arranging a mortgage.
It’s common to receive enquiries from people who are struggling to raise a mortgage due to elderly co-applicants being on the right to buy agreement. Where a mortgage could be afforded by the younger applicants in their own right we are often able to find a solution to this type of problem.