Right to Buy was a scheme brought in by Margaret Thatcher in 1980 and enabled tenants of social or council housing to purchase the homes that they lived in, at large discounts.




Tenant discounts

In order to make the houses more affordable to the tenants, they can be eligible for discounts of up to 60% of the property value, although this discount is capped at £77,900 (except in London Boroughs where the cap is £103,900). This cap is set to increase each year in line with the consumer price index

In order to qualify, the buyer has to have been a public sector tenant for at least 5 years, wherein the discount begins at 35% and increases by 1% every year onwards that they are a council tenant, until either the percentage cap of 60% or the capital cap of £77,000 (or £103,900 in London) is reached. In order to qualify for the full discount therefore, the buyer would have to have been a tenant for up to 30 years.

Flats are discounted slightly differently. After 5 years the tenant could qualify for a 35% discount, and then for each year after, the discount will rise by 2% until the capital cap or percentage cap is reached.

Eligibility

In order to qualify for the Right to Buy, the buyer must

  • have been a public sector tenant for a minimum of 3 years (although these years do not have to been consecutive)
  • have no outstanding debts and good credit history
  • not own another home
  • your home used to be owned by the council but was sold to another landlord (like a housing association) while you had a tenancy in it. Your home may come under the Preserved Right to Buy.

Selling the Property

If the tenant, having bought the house and become a home-owner, wishes to sell the building on in the future, they should be careful of a few catches.

Selling the property within a year of purchase will require the buyer to repay the full amount that was discounted. For every year that goes by, the percentage of the discount that has to be repaid upon selling the property drops by 20%.

Note:  the discount is a percentage of the property value at the time of purchase. Therefore the discount paid back is a percentage of the selling price.
Years of ownership Discount repaid
1 year 100%
2 years 80%
3 years 60%
4 years 40%
5 years 20%
6 years and over 0%

An example

A public sector tenant rents a council house worth £100,000 and decides to buy the property and become the home-owner.

They have lived there for 7 years. Therefore they get a 35% discount, plus 1% for each year above their fifth year.
The total discount they are eligible for is 37% (£37,000), which means the house will cost them £63,000.
After 4 years the home-owner decides to sell the house still worth £100,000 and move out.

Being in the fourth year, they must repay 40% of the discount they had, which was 37,000, so they would repay £14,800.

BUT: If the property went up in value, for example to £105,000, the home-owner would have to pay back more.

This is because the 37% discount is of the property value so 37% of £105,000 is £38850. Being in the fourth year of ownership, the home-owner would have to repay 40% of this, making the final discount repayment £15,540.

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How Help to Buy Equity Loans Work

  • First time buyers and those already on the property ladder can apply.
  • To qualify a 5% deposit is required.
  • A 75% mortgage must be secured from your bank or building society.
  • The remaining 20% of the property’s value is funded by an equity loan provided by the Government.
  • House prices can’t be more than £600,000 in England and £300,000 in Wales.