> Right To Buy Mortgage - UK Guide
In a nutshell
A mortgage that allows council tenants to buy their home.
Best Mortgage For
Council tenants that wish to buy the house/flat which they currently rent.
You'll be able to source both repayment and interest only mortgage options and a full range of deals for a right to buy mortgage. So, for example, you'll be able to find fixed rates, capped rates, discounted offers, trackers and variable rates. Your actual choice may be not be available with all lenders however. If you do opt for an introductory deal such as this then it will only last for a certain period (usually between 1-5 years) after which you'll revert to the original underlying product such as a variable rate or a tracker, for example.
Typical Amount to borrow
The chances are that you won't need to borrow the full value of your home with a right to buy mortgage as most tenants that qualify for the scheme will be given a discount on the price they have to pay for their home. Many lenders will therefore let you borrow more than you actually need when you take out your mortgage. In all other cases, standard borrowing amount terms will apply - these start at 95% of the value of your property and will vary from lender to lender.
In many cases you won't actually need a deposit for a right to buy mortgage as most consumers that take up this kind of deal will get a discount on the price they actually have to pay. If you do find yourself having to pay a deposit, you'll be looking at 5%+ depending on the lender you choose.
The first advantage here is the fact that you will be paying out your money every month to buy your current home, rather than simply handing over rent. Rent is often seen as 'wasted' money as you're not buying anything for it apart from the opportunity to live in your house/flat. With a right to buy mortgage, you'll own the house/flat. And, you'll also probably qualify for a discount on the value of your property. This means that you'll pay less for it than it is worth on the market. This can rise to up to 70% depending on how long you've been a council tenant and what kind of property you currently rent. It can also be capped in some areas.
What to look out for
A right to buy mortgage will make you liable for costs and fees that you won't have had to pay before. For example, your council will probably only help you with emergency repairs at the most once you own your home. You will have to bear the cost of any repairs, maintenance work and improvements.
If you live in a council flat and take out a right to buy mortgage then you will also have to pay ground rent (generally a nominal fee) and will also probably have to pay service charges. These latter charges can be quite high - especially if you live in an old, high-rise type block. It'll be worthwhile checking these out before you go ahead. If, as a council tenant, you're currently being paid housing benefit then this will stop once you buy the property. If you are on benefits, you'll need to assess how your situation will change as a whole as a home owner. You may also find that your current council rents include certain charges such as council tax and water charges. Once you buy, you'll have to pay for these separately. You may experience some problems getting a mortgage from 'standard' lenders on a right to buy basis. This really depends on the area in which you live and the type of property you live in. Some lenders, for example, won't give out mortgages for high-rise flat purchases. And, even if you get a mortgage, you need to look at the big picture - i.e. that you will be able to find a buyer for it in the future if you decide to sell. You won't qualify for right to buy until you have been a tenant in an applicable situation for at least two years. And, if you do qualify for a discount then you will have to pay some or all of it back if you opt to sell the property within three years of its purchase. If you're applying for a right to buy mortgage and have done this before then any discount you qualify for may have your original discount deducted from it.
If you are a tenant of a housing association then you can take up a similar scheme called 'right to acquire'. If you can't afford to pay the full mortgage necessary then you can also apply for a 'rent to mortgage' product where you buy part of the property with the option of full purchase later on. Overall, right to buy is probably the best option for council tenants.