Right to Buy vs Remaining a Tenant: Can You Afford to Buy your Home?

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The prospect of owning your home is particularly tempting when there is the offer of a huge discount on the table. Introduced in 1980 by Margaret Thatcher, the Right to Buy scheme provides qualifying council house tenants with the opportunity to purchase their properties at a heavily discounted rate.

Depending on how long you have lived in a council house, you could qualify for anything up to £84,200 off its true market value (£112,300 in London).

For the most part, eligibility is determined solely on the basis of the length of time you have resided in social housing. Full details of eligibility requirements can be found on the government’s official Right to Buy website, where there is also a quick eligibility quiz you can take to see if you could qualify for a discount.

But even if you are able to benefit from a significant discount on your home’s market value, there are other factors to consider before going ahead. Primarily, you need to consider objectively whether you can comfortably afford homeownership.

Additional costs and outgoings to consider

The reduced purchase price of your home could be well within your means, in terms of the subsequent monthly mortgage repayments, of course. Along with the price of the property itself, you will also need to consider whether the following can be comfortably covered by your budget:

  • Mortgage fees: Setting up a mortgage can be surprisingly expensive, with a variety of arrangement fees, administration fees, and setup fees imposed by most major lenders.
  • Conveyancing: This refers to the main legal fees you will need to pay when purchasing your home, for the services of a conveyance solicitor.
  • Survey: Though not technically a legal requirement, it is essential to organise a thorough survey of your property to ensure there are no major issues prior to purchasing it.
  • Stamp duty: Properties valued at less than £250,000 are currently exempt from stamp duty taxation, though the current suspension is set to expire at the end of September.

The total combined costs of these additional fees can often reach up to several thousand pounds, which needs to be paid upfront for the transaction to go ahead, as opposed to being covered at a later date. Funding can be arranged with bridging loans if needed.

Deposit requirements

It may be possible to use your Right to Buy discount as a form of equity as an alternative to paying a deposit. This is something that differs significantly in accordance with lenders’ individual policies.

Are you planning on relocating?

It is important to remember that right-to-buy mortgage discounts are offered on the condition that the property’s buyer does not subsequently sell their home too quickly.

If you put your home on the market after perching it at a discounted price, you will be required to pay back a proportion of the discount, as follows:

  • 100% if you sell in the first year.
  • 80% if you sell in the second year.
  • 60% if you sell in the third year.
  • 40% if you sell in the fourth year.
  • 20% if you sell in the fifth year

This could therefore significantly affect the affordability of your property purchase if you intend to relocate at any time in the near future.

For more information on any of the above or to discuss the potential benefits of Right to Buy in more detail, contact a member of the team at UK Property Finance today.