Getting a Right to Buy Mortgage to buy your council home after receiving a discount from the council
The Council has given a discount to buy my property under the Right to Buy scheme can I get a Right to Buy Mortgage to help with the purchase?
If you want to buy your council home with a mortgage i.e. Right to Buy then you are reading the right article as it will help you determine whether you are eligible.
I have broken down some of the most frequently asked questions that I receive in regards to Right to Buy mortgages:
Are Right to Buy mortgages open to me if I have had bad credit in the past?
‘Yes’ there are an increasing breed of Right to Buy Mortgage Lenders that offer terms to applicants with late or missed payments, defaults and CCJs. That said they tend to prefer houses rather than flats. If however if the issue is more extreme such as IVAs and bankruptcies then your chances are very slim.
I do not have a deposit so can I use the discount given by the local authority?
Yes, the Right To Buy Mortgage Lenders will allow the local authority discount to be used in lieu of your own deposit. Therefore if the discount is £75,000 you will only have to take a mortgage for the balance between that and the open market value.
Open market value of the property is £200,000. You have the opportunity to buy it for £125,000. You can borrow the entire £125,000 as a mortgage. Effectively a 100% mortgage.
It is also common for lenders to add an extra rule preventing borrowing exceeding the open market value by a certain percentage with 75% being the norm but we do have lenders we can access that allow this figure to be as high as 95%.
Open market value of the property is £200,000. You have the opportunity to buy it for £170,000. This equates to 85% of the open market value. So the lenders that only lend 75% would be ruled out unless a 10% deposit is put down.
Can I borrow more than the Right to Buy discounted purchase price i.e. over 100% mortgage?
Yes, however the number of lenders providing this feature is limited so you may need to speak to a Mortgage Broker, such as Niche Advice. Any additional funds are normally limited to home improvements (and occasionally legal fees) but the total mortgage is typically capped at 75% of the open market. Capital raising for any other purpose is not possible.
The local authority will have to grant permission to borrow above the discounted purchase price too. This process is technically referred to as an ‘unconditional postponement of their charge’.
What is the maximum I borrow on a Right to Buy mortgage?
This will depend on: your current circumstances; your occupation; your income; age; personal credit commitments and a number of the dependents you have. I would be more than happy to work out a figure out once you been granted the Right to Buy and have made an enquiry.
Benefit income may also be used as a secondary source of income to support a main job in some instances. Guarantors (of good standing) such as children vouching for their parents who have a Right-to-Buy can be considered provided their income covers their own personal commitments as well.
My parents have been granted the Right to Buy Mortgage but I’m the earner can I satisfy the income requirement on their behalf?
Yes, provided live in the property and are also named on the Right-to-Buy papers.
If you own a different property and have a successful career the lender it may still be possible under ‘guarantor’ criteria. Your income would need to cover both mortgages and your Lender options are limited.
Fred is an IT Manager who has been employed for 2 years. On a basic salary of £50,000. He owns a property in London for £350,000 with a £125,000 mortgage. His parents have been provided with the opportunity of purchasing their Right-to-Buy in Dorset for £75,000.
Total mortgage liability £125,000 + £75,000 = £200,000.
This means Fred needs a lender that will lend 4 times his income (£50,000 x 4 = £200,000) which is certainly possible.
I’m retired can I still get a Right-to-Buy mortgage?
If you are retired the Right to Buy Mortgage Lender will need to be comfortable that your retirement income as regular and sustainable income such as a pension or lifetime annuity. State pension income alone is unlikely to be acceptable to the lenders as is income from savings, other forms of investments and buy-to-lets.
The maximum mortgage term for most lenders is typically to age 70 or 75. At Niche Advice we have Right to Buy mortgage options to age 85 and beyond.
Low mortgage rates for a Right to Buy mortgage
To obtain the best Right to Buy mortgage rates possible it is recommended that you speak to a fully independent Mortgage Broker. They will be able to research the full market to ensure you do not miss out on the lowest Right to Buy mortgage deals available.
What documents will the Right to Buy Mortgage Lender need to support my application?
This does vary from case to case but as a guide you will probably need the following:
- A Right to Buy notice.
- All the names given on the Right to Buy notice must be on the mortgage.
- Details of the home improvements planned (if applicable).
- If you are employed: 3 months’ payslips and last P60.
- If you are self employed: 2 years’ accounts or self assessment returns.
- If you are retired: your private, company and state pension or annuity statements.
- Last 3 months’ bank statements showing your current rent being paid and salary credit.
What is the next step to see if I can get a Right to Buy mortgage?
Under the Contact tab on this website there is an online enquiry form, please populate this with the words Right to Buy and we will be in touch.
We will provide you with product research giving you a breakdown of affordability repayments and all fees, and upon your acceptance we can oversee the application to the chosen lender.
For more information on Right to Buy Mortgage products please contact us on T: 020 7993 2044 or alternatively complete the simple enquiry form on the top right hand side of this page.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Finance Brokers In London. His role is very much focused on Property financing both on residential and commercial lines.