What is Right to Buy?
Right to Buy is a Government scheme that has been in place for many years, where tenants of council houses can, if they choose, take the option to purchase their own homes. This is usually at a heavily discounted rate.
To qualify, you need to have been a council tenant for at least three years, and the discount could be as much as 35% of the market value of the property. If you have been a tenant for more than five years and are renting a house, the discount increases by 1% for every extra year over five years. If renting a flat, the discount goes up by 2% for every year you’ve been a tenant after five years.
At the time of writing, the maximum discount you will be able to get on a council housing property under the Right to Buy scheme throughout England is 70% of the open market value or £96,010 (rising to £127,940 across the London boroughs), whichever is the lesser figure. The Government increases this figure every April in line with the Consumer Price Index (CPI).
Housing Association Right to Buy
In September 2019, the Government announced a new initiative to provide Housing Association tenants with the ‘right to buy’ the homes they live in. This was just the latest in a series of policies designed to help people on lower incomes who currently rent their properties from an approved qualifying body to get their first foot on the property ladder and create, through home ownership, an asset for later in life.
If you are currently renting your home from a Housing Association and want to know more about mortgages to fund buying a share in your home, then IMC Mortgage Brokers are here to give you advice to set you on your way.
What is a housing association?
Whereas a local authority or council will rent out properties it owns under the label of ‘council housing’ to people who fall within the parameters of needing social housing, a Housing Association will do essentially the same thing, but with properties that are privately owned, let and managed by the association on a non-profit basis.
The housing industry classifies Housing Associations as ‘registered social landlords’, and all should be registered with the Regulator of Social Housing, who keep a statutory list of social housing providers. As a not-for-profit organisation, a Housing Association uses all revenue it makes from rents to maintain its existing properties and acquire more properties to use for social housing.
In addition to Housing Association properties, ‘social housing’ can include Government-owned council housing and other affordable housing available through approved qualifying bodies such as NHS trusts and the armed services. On occasion, a local council will sell or transfer ownership of council properties to a Housing Association to outsource their social provision.
Housing Associations are typically, although not always, registered charities, often aiming to help a particular target market, for example catering to the needs of elderly or disabled people, or the unemployed. Properties will usually be let out at a discounted level of rent, although the actual ratio of the discount will vary from place to place, or one association to another.
Who is their accommodation for?
By its very nature, Housing Association property is inclusive. Their housing is for anyone and everyone who faces difficulty or hardship in securing a place to live by themselves, for a variety of reasons. The whole reason for social housing is to make accommodation affordable and available for all who need it.
Traditionally, people making use of social housing have been those from vulnerable situations, such as disabled or elderly people, or those in low-income brackets needing Government support. However, in more recent times, as property prices have escalated, Housing Associations have increasingly helped younger people who may be struggling to save a large enough deposit for a home to find an affordable place to live through both ownership and rental schemes.
With council housing stock reducing in general, Housing Associations are often a vital resource of affordable rented accommodation. You will often find local authorities who are unable to supply affordable housing to people – either due to a lack of availability or supply, or because they don’t meet all the criteria – referring them to a Housing Association to meet their needs.
What type of schemes do housing associations offer?
When it comes to helping people afford their home, a Housing Association will normally either provide rented accommodation at a discount on the usual market rate, or help people to start buying their property on a Shared Ownership Right to Buy basis.
Shared Ownership is when a tenant or anyone who wants to get their first foothold on the property ladder can purchase a share of the accommodation rather than the whole property, with the balance share being still owned by the Housing Association. This allows people to invest an amount within their budget in a property and still live in a larger place than they would otherwise be able to afford.
For example, if the market value of a house was £250,000, then the buyers might be able to buy a 25% share for £62,500 or a 50% share for £125,000. This means they would only need to find a mortgage for these lesser amounts, and also that the deposit needed might only be as little as 5% of the value of their share of the property. They would then need to pay rent to the Housing Association for the remaining portion of the property, often again at a reduction on the typical market rate.
How does Shard Ownership Right to Buy Works?
The main objective of this new scheme is to bring tenants of Housing Association properties into parity with those renting council housing accommodation in their ability to purchase a share of their homes. Under this initiative, tenants of new Housing Association properties will automatically get the right to buy a share of their home, perhaps in some cases as small a share as 10%, to get them started on the property ladder. This comes with the option to increase their share over time as their circumstances change, so that 100% full ownership is eventually possible.
The Government wants to work constructively with Housing Associations so the new Right to Shared Ownership can also be available to those renting existing Housing Association properties as soon as possible, and more people can invest in their own homes.
In the initial release of details of the new scheme, the Government gave an example of a Housing Association tenant renting a property worth £200,000 on the open market. They would be able to purchase an initial share of just 10% and still pay subsidised rent on the remaining 90% share of the property. The aim is for those on lower incomes to be able to buy property which might otherwise be outside of their means by them only needing to fund the initial 10% (£20,000) with a mortgage of £18,000 leaving them only needing to save enough for a £2,000 (10%) deposit.
What about existing schemes?
The Government has also taken measures to make existing Shared Ownership schemes more affordable and easier for people to get a start with. Firstly, the initial minimum stake in a Shared Ownership property will be reduced from 25% to 10%, enabling people with a smaller amount for a deposit access to the scheme with a correspondingly smaller mortgage.
Secondly, the new rules will allow purchasers to increase their share in the property in increments of only 1%, instead of 10% portions as currently required. As this would entail a greater number of arrangements, a reduction in the fees charged has also been outlined.
Want to talk to someone about Shared Ownership Schemes?
Our team at IMC Mortgage Brokers has a great deal of experience in handling mortgage applications for people from all backgrounds, in all kinds of circumstances, including those looking to buy into their Shared Ownership property. We have access to a wide network of lenders, from high street names to specialist niche-market companies, including a number offering deals you won’t see advertised online or on the high street.
Our advisors will look at your unique case, assess your affordability and even make informal enquiries with lenders before formally placing your application with the provider who we think will be best suited to supply you with a mortgage for a Shared Ownership property.
Give us a call today on 0330 094 5876!
