Right to Buy Mortgages
While the nation has always been and still is very divided on the merits and perhaps more loudly voiced, the converse shortcomings of Thatcherism – many believe that one of the most consensually popular policies of that period in British politics was the introduction of the council tenant Right to Buy Scheme.
Since it’s introduction in 1979, more than two million council tenants have purchased the property they were renting. However, popularity does not always engender accompanying success – and critics of the Scheme have evaluated Right to Buy in a derisory manner, saying that while it might be considered a social experiment that has expanded property ownership amongst people that otherwise may not have enjoyed the opportunity, it is also one that has increased the gap between the have’s and have not’s on some of the most poverty-stricken estates in the UK.
While people will undoubtedly remain divided on this thorny subject, one thing is certain - the Scheme has not only survived for more than 30 years, it is continuing to expand and evolve as a potential investment route for a new generation of council tenants.
The opportunity to buy a substantially discounted local authority property is generally open to those that have been secure council tenants or so-called preserved housing association tenants for at least two years (five years for those that became tenants after 18 January 2005). The decision to proceed is a major one with far-reaching personal and financial consequences, as even after successfully applying for the Right to Buy Scheme, there is then the hurdle to overcome of seeking out and securing a suitable mortgage to complete the purchase. And after that, there are of course costly implications that tenants rarely need to worry about, such as the maintenance and upkeep of a property now personally owned.
Right to Buy mortgage lenders offer specific products for the purpose, but there are less of this type of product and fewer lenders than on the general residential house buying market. On the plus side, most lenders operating in this sector will offer up to 95 per cent or more of the Right to Buy discounted price – but not the open valuation price. So, a tenant living in a property independently valued at £100,000 might be offered a one hundred per cent mortgage of £75,000, assuming the Right to Buy discounted price is £75,000. In reality, this example means the loan-to-value mortgage offer is 75 per cent – but the borrower has the advantage of having the entire amount of the purchase price covered by the loan.
Some of the best Right to Buy mortgage quotes are available from high street lenders including Santander, Northern Rock, Alliance & Leicester, C&G, HSBC, Lloyds, Halifax, The Nationwide and NatWest – though currently the highest loan-to-value of 90 per cent is only offered by Alliance & Leicester, Halifax, The Nationwide and NatWest. This is probably entirely due to the shortgage of cash flow created by the financial downturn and the recession. Product availability and loan-to-value rates may therefore increase in the future, once the UK bank financial reserves improve.
Because a council right to buy mortgage generally has a large loan-to-value rate, most applicants only need to find a very small deposit sum from their personal finances – and in some cases, none at all. This is a considerable advantage when compared with the current abandonment of 100 per cent mortgage lenders on the open market. Most ordinary borrowers currently need to find about 25 per cent of the property valuation for their deposit, which makes the Right to Buy opportunity a very attractive proposition – particularly for those with little or no savings.
While there is no specific Right to Buy mortgage calculator to help applicants assess products or predict payment obligations available online (as far as I can tell), most qualifying lenders are happy to provide free comprehensive quotes. Mortgage comparison tables are a useful starting point, as these can supply essential figures to identify a few of the potential best-buys. Council tenants might find this aspect of seeking a mortgage rather daunting and somewhat confusing, but there is lots of good and accessible help and advice for those that might need it – in the first instance, try approaching your local authority, who are likely to have experienced and knowledgeable officers available to assist, guide and inform.
TONY BOOTH MNAEA is the author of The Buy-To-Let Manual, The Beginner's Guide to Property Investment, How To Build Your Own Home and How To Be Your Own Estate Agent