Will Boris’s new Right to Buy scheme unleash a home buying revolution like Mrs T’s?
MARGARET Thatcher’s Right to Buy scheme helped nearly two million households achieve their homeownership dream. Her flagship policy, which was introduced in 1980 and allowed tenants to buy their council house at a discount rate, was a huge success and helped turn the fortunes of her government around.
Now, more than four decades later, the Conservative party is said to be considering giving millions of people the right to buy their homes from housing associations to help ‘generation rent’.
The revelation comes after a pandemic property boom pushed house prices to a record high — and increasingly out of reach of many first-time buyers who simply cannot put aside enough for a deposit.
But critics say that few social housing tenants would be able to afford to take advantage of the scheme and what is really needed is a greater supply of homes.
Here Money Mail examines how the new policy would work and if it will really help families who are struggling to get on the property ladder . . .
DISCOUNT PROPERTY
THE RENEWED Right to Buy scheme would only benefit those who rent properties from housing associations in England. This is around 2.5 million households — or five million people.
Under the proposals being considered, these renters would have the power to purchase their homes at a discounted price. The plans are modelled on the Right to Buy scheme introduced by former prime minister Thatcher that is still in place today.
Housing associations operate in a similar way to council houses in that they offer subsidised rent to individuals or families on low incomes.
Often they are offered to those who do not quite match the criteria for council housing — which tends to be slightly cheaper — but still need extra support.
Housing-association tenants can purchase their home but the scheme is limited. The maximum discount is £16,000 and you can only buy a property built or acquired by an association since 1997.
Under Thatcher’s Right to Buy, households could buy their council homes for a discount of between 33pc and 50pc of the market price — or 70 pc for flats.
This discount was raised to 60pc in 1984 and then 70pc in 1986. You had to have been in council housing for a minimum of three years to qualify.
The then-Secretary of State for Environment Michael Heseltine said the scheme was designed to ‘stimulate attitudes of independence and self-reliance’.
The Government has not yet announced the discount tenants can expect under the new scheme. However, when the idea was first mooted by David Cameron’s Government in 2015, it was suggested housing association tenants could receive up to the same 70 pc discount as council tenants.
A pilot of the system in the Midlands in 2018 saw tenants typically receive a 46 pc discount for properties valued at an average of £137,271. These discounts were subsidised by the Department for Levelling Up, Housing and Communities.
FINDING DEALS
SOME lenders have specific mortgages for Right to Buy. Leeds Building Society offers a five-year fixed-rate loan of
2.44pc for those applying for the housing scheme. Other firms will offer standard mortgages for Right to Buy homes.
Some providers will request a deposit — usually around 5pc of the discounted price — while others will accept your discount as a deposit. This means some firms, including Leeds Building Society, will lend you 100 pc of the discounted price.
Nicholas Morrey, from mortgage broker Coreco, says: ‘Lenders will have their own way of doing things depending on their risk profile. Some Right to Buy mortgages might be more expensive depending on the provider’s appetite at the time.’
Mr Morrey says the scheme could provide an opportunity for home ownership for many but that there may be unintended consequences. He says: ‘In expensive cities or high-demand areas the discount may not be enough to bring properties within budget.
‘And if councils do not reinvest the money in providing more social housing, it could put even more pressure on low-income families. They could end up struggling to find a home to rent, let alone buy. There needs to also be clauses to stop people buying property from the council only to immediately rent it out to stop the scheme being abused.’
EXTRA COSTS
IF YOU buy a freehold property you’ll be the outright owner and will be responsible for all of the repairs and maintenance.
Most flats and some houses are leasehold properties. This means you must take care of the interior of your home while the landlord looks after the exterior.
You will have to pay a service charge, which covers day-to-day maintenance and could be hundreds of pounds a year or more.
Should there be major repair or improvement works, such as replacing the roof or windows, you will also have to cover the cost.
If the council agrees to sell you the property, you should also be sent a Section 125 notice which will give you an estimate of the service charges and repair or improvements cost to pay during the first five years after purchase.
As a tenant, you may be able to claim housing benefit to help pay your rent.
But the payments will stop when you become a homeowner.
Those who cannot keep up with mortgage repayments and have their home repossessed may not be entitled to council rehousing.
SELLING SNAGS
THERE are also a number of restrictions with Right to Buy if you decide to sell up.
You must first offer the property to your old landlord or another social landlord, such as a council or housing association in the area, if you sell within ten years of buying.
It should be sold at the full market price as decided by both of you. If you cannot agree, a district valuer will set the price.
If the landlord fails to respond to your offer within eight weeks you can sell your property to anyone.
If you sell your home within five years you will need to pay some — or all — of the discount back depending on the timeframe.
You’ll repay all of the discount if you sell in the first year.
In the second you’ll need to give back 80pc. The rate drops by a fifth every year until year five when you will repay 20 pc of the discount.
For example, someone who bought a £250,000 home with a 40pc discount would have saved £100,000. If they sold it 18 months later for £280,000 the 40 pc discount becomes £112,000.
As they are in their second year, they would need to pay back 80pc of the discount — £89,600.
Rents in housing associations are often paid via Universal Credit, so many housing association tenants can’t afford the cheap rent on their own but rely on state assistance.
Buying agent Henry Pryor says: ‘About half the homes previously bought under Right to Buy are now let out for higher rents
in the private sector with thousands of rents subsidised by the taxpayer.’
LACK OF STOCK
Since 2010 the Government has created 574,100 new affordable homes and 156,600 for social housing.
campaigners say expanding Right to Buy will further reduce the number of affordable homes currently available, putting more pressure on low-income families.
Polly neate, chief executive of Shelter, says: ‘The hare-brained idea of extending Right to Buy to housing associations is the opposite of what the country needs.
‘There could not be a worse time to sell off what remains of our last truly affordable social homes. Right to Buy has already torn a massive hole in our social housing stock as less than 5pc of the homes sold off have ever been replaced. These half-baked plans have been tried before and they’ve failed.
‘More than one million households are stuck on social housing waiting lists in england, and with every bill skyrocketing, the Government should be building more social homes so we have more not less.’ But Simon Bath, from property technology company iPlace Global, says the extended scheme could potentially act as a stepping stone for many — as long as more social housing is built.
He says: ‘The Government must take its time to introduce new measures when developing this scheme to ensure that the property market can cope with these changes; and more importantly, to make sure that every person in the country has the equal opportunity to own a home.’
GENERATION RENT
CRITICS point out that the scheme does nothing to benefit the 4.4 million households who privately rent in england.
Rents have risen at a record rate over the past year, jumping by 14pc in London and by more than 19 pc in other hotspots such as Manchester.
Overall average rents are now 15 pc higher than they were two years ago, according to figures from the Office for national Statistics.
Dan Wilson craw, deputy director of campaigning body Generation Rent, points out that these renters need help more imminently than housing association tenants.
He says: ‘The irony is that people lucky enough to have a social tenancy already have a better shot at home ownership, compared with private tenants, because they are paying lower rents and so can save a deposit more quickly.
‘This proposal does nothing for the private tenants who are paying 40pc of their wages on rent for a home they can still be kicked out of with two months’ notice. On top of that, many social housing tenants cannot afford to buy homes — even with a discount. This is especially true in areas like London.’
Paula Higgins, chief executive of the HomeOwners Alliance, says: ‘The government’s plans will only benefit the small percentage of people who are in the right place at the right time. Most social housing tenants will not have the money to buy a home even with a discount.’
In the Midlands pilot scheme, 1,892 tenants successfully applied to buy a home. On average their income was £34,666.
The Right to Buy proposal comes as the pandemic property boom has made it harder for many first-time buyers to afford a home.
The average first-time buyer paid a £53,935 deposit last year, according to Halifax.
Experts warn home loans are likely to get even more expensive in the months ahead, with the Bank of england expected to raise interest rates again tomorrow — possibly from 0.75 pc up to 1 pc.
Lenders have already pulled 431 mortgages from the market so far since the beginning of February, according to analysts Moneyfacts.
A government spokesman says: ‘We want everyone to be given the chance to own a home of their own, and we keep all options to increase home ownership under review.’