Right to Buy mortgage discounts

If you are a public-sector tenant that has made an application and discovered that you are eligible for the government’s Right to Buy scheme, it is possible that you will be entitled to a discount on the value of the property that you’re looking to buy. The level of the discount available will depend on a number of factors.

The length of time you have spent as a tenant: Right to Buy discounts are only available to tenants who have lived in public-sector homes for at least three years, but these three years do not need to be continuous. This three year period can have been spent in different houses, with different landlords. The level of discount available to you will be higher the longer that you have lived in public-sector properties.

Location: The discount available to you will be affected by the location of the property, as there are different rates available for different areas of the country.

The type of property: discount levels differ for houses and flats.

What discount do you qualify for?

If you have lived in the house for between three years and five years, you can receive a 35 per cent discount, or a 50 per cent discount if it is a flat.

If you have lived there for six years or more however, you can receive a further one per cent discount for each year. This is up to a maximum of 70 per cent, or the cash maximum of £77,900 (£103,900 in London), whichever comes first. For flats, the discount rises two per cent for each year, up to the same maximum values.

What is the ‘cost floor’ rule?

The ‘cost floor’ rule is a rule that exists to protect the money that has been spent by property owners to improve and maintain a home. If the landlord of a property has spent more money on the house than its current valuation, then you will not receive a discount on the purchase price.

Repaying the discount when you sell

If you find yourself considering being a part of the Right to Buy scheme, you should remember that you will have to pay back the discount should you sell the house within the first five years of owning it. You’ll have to pay back:

• 100 per cent of the discount if the property is sold in your first year of ownership
• 80 per cent of the discount if sold in the second year
• 60 per cent of the discount if sold during the third year
• 40 per cent in the fourth year
• 20 per cent if sold in the fifth year

However, the actual monetary value of your repayment will be based on the resale value of your property and not the original discounted price.

This means that if you were to purchase your home for £200,000 with a 25 per cent discount (£50,000) and then decided to sell it after 12 months for £250,000, you would have to pay back 25 per cent (all of the discount) of the new sale price, which in this case would be £62,500.

Right to Buy and third-party agreements

Should you decide that you want to transfer your property to a third party, such as a private landlord, within five years, you will be required to pay back a certain amount of the discount based on the date you signed the transfer agreement. For example, if you agree to a transfer before you buy your house or flat, you’ll have to repay the discount in full.

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