What is ‘Right to Buy’?
First introduced in 1980, the Right to Buy scheme allows tenants who live in Council accommodation to buy their home for a significant discount, far below the full market value.
The scheme offers tenants the chance to save a considerable amount of money off of their property, with more substantial discounts given the longer tenants have lived in their property.
Eligible Right to Buy tenants can receive up to a maximum discount of £84,600, (or up to £112,800 if you live in London). These figures usually increase every year on the 6th of April, in line with the Consumer Price Index.
What is ‘Right to Acquire’?
The government’s Right to Acquire scheme is very similar to the Right to Buy system, with the main difference being that Right to Acquire applies to Housing Association tenants as opposed to Council tenants.
Unlike the Council, tenants who live in Housing Association properties have a secured tenancy agreement in place for a defined period; as such, the Right to Acquire allows for these tenants to purchase the home for a discount of up to £16,000 in select areas of England.
Who is Eligible for the Schemes?
Both the Right to Buy and the Right to Acquire schemes are available to all Council and Housing Association tenants, and also extends to social landlord tenants – providing the landlord is taking part in the scheme.
Unfortunately, the schemes are only applicable to tenants living in England. In order to qualify for the Right to Acquire scheme, in particular, the property must be built after April 1997 or acquired from the local authority after April 2007.
Both schemes will require you to have been a ‘secure’ tenant – i.e. one who has been given a long-term tenancy and has spent at least three years as a public sector tenant. However, these three years do not have to be continuously spent in the same home in order to become eligible.
While both schemes have few criteria that you need to follow to qualify, it is important to keep in mind that you will not be eligible for the scheme if you’re facing an eviction notice to leave your home, declared bankrupt, have a bankruptcy petition pending against you, or have made an arrangement with your creditors, and still owe them money.
Are the Schemes Right for Me?
For many, buying a home is typically the largest purchase you will make, as such it is imperative to fully understand if using the Right to Buy or Right to Acquire scheme to purchase your rented home is the right decision to make.
While owning your home can provide security and equity for your family for generations to come, it’s important to keep in mind that there are some potential downsides to owning a home instead of renting.
Can you Afford It?
The first question you should ask is whether or not you can realistically afford the property. While you may be eligible for a sizeable discount on the purchase price, it is important to note that becoming a homeowner will make you ineligible for any housing benefit that you may have received from the government.
In addition, you should be aware that buying a home comes with a significantly greater amount of overheads to factor than renting does, and the total price you pay for your home could stretch far beyond your original budget.
The three major factors to consider when moving from rented premises into your own home are mortgage repayments, buildings insurance as well as the maintenance and repair costs.
While mortgage repayments tend to be cheaper than the average rent in the private rental sector; when compared to your discounted rent for your Council or Housing Association property, you could end up paying more per month on mortgage repayments than you are currently doing so in rent.
Beyond the potential increase in monthly outgoings and the loss of housing benefits, having a mortgage means that your home could be repossessed if you fail to keep up with your mortgage repayments.
Maintenance and Repair Costs:
As you will be the owner of the property, the Council/Housing Association will no longer be responsible for any repairs your home requires.
Depending on the type of Council/Housing Association home you buy, the upkeep of communal areas may still be covered by the local authority, but you will be expected to pay a monthly management fee for this privilege.
As a homeowner, you’ll now need to get buildings insurance to cover your property in the event of damage from floods, fires and other similar disasters. Buildings insurance is typically a requirement from most mortgage lenders.
Potential Issues with Selling
Unquestionably, the biggest benefit to owning your home as opposed to renting is that it is yours to keep. Another major plus point is the ability to sell your home and potentially profit in the process.
However, while house prices on average tend to rise over time, the value of your property is not guaranteed to increase, and depending on market conditions, your property could potentially be worth far less than you initially bought it for.
While many of the factors around selling a home do apply to properties purchased via the Right to Buy or Right to Acquire schemes, one key difference is that you will be penalised for selling your home within five years of your purchase.
Selling a Right to Buy or Right to Acquire property within five years will require you to pay back a portion of your discounted purchase price. Meanwhile, selling your home within 10 years could mean that you’ll have to potentially sell your home back to its previous owner, under a policy known as the first right of refusal.
Right of First Refusal
As mentioned above, if you wish to sell your home within 10 years of buying it through either scheme, you must first offer it to either your former landlord or to another social landlord in your area at full market value.
The market value must be agreed to between both yourself and the intended buyer. In the event that you or the other party are unable to agree to a price, the government will instruct a District Valuer to determine the property’s price.
However, while you ultimately have to give right of first refusal to either your previous landlord or another social landlord in the area, you will eventually be free to sell your property on the open market should your offer not be accepted within eight weeks.
As briefly mentioned above, selling your Right to Buy or Right to Acquire property could see you having to pay back a proportion of the discount you received; this value will incrementally decrease the longer you remain in the property.
If you were to sell your home within five years of buying it-through either scheme – you’ll have to pay back either some or all of the discount you initially received.
A breakdown of the discount percentage you would be required to pay back is as follows:
100% of the discount if sold in the first year
80% for the second year
60% for the third year
40% for the fourth year
20% for the fifth year
How to Apply for the Right to Buy & Right to Acquire Schemes
If you’ve decided that using the Right to Buy or Right to Acquire scheme is right for you, then you’ll be glad to know that applying to either scheme is a relatively straight-forward process.
Your landlord must give you a yes or no answer within four weeks of receiving your application, or eight weeks if they’ve been your landlord for less than three years.
Should your landlord agree to sell you the property, they will send you an offer (the Right to Acquire version can be found here) within eight weeks of saying yes (if you’re buying a freehold property), or 12 weeks if you’re buying a leasehold property.
Should you decide to change your mind and wish to continue renting the property, you can contact the landlord at any point before the purchase has gone through, to state your new intentions.
If you disagree with the landlord’s offer and their valuation of the property, you can write back and ask for an independent assessment to be carried out by the HMRC. After receiving the independent valuation, you will then have 12 weeks to respond to the landlord with your decision on whether or not you would like to continue the purchase.
Unlike buying a house in the private sector you may be entitled to a discount if there are delays due to your landlord.
Should you need it, you can also make use of the government’s free Right to Buy Agent Service who can provide further information and support throughout the process.