Right to Buy mortgages: deposits, discounts and lender checks

Under Right to Buy you buy your council home at a discount off its market value. Most lenders treat that discount as your deposit and lend against the discounted purchase price, so many buyers need little or no cash of their own for the deposit itself. You will still need money for legal fees, a survey and moving costs. If you sell within the discount repayment period you have to pay some or all of the discount back, and the rules differ across the UK.

This is the first thing to check, because plenty of online guidance ignores it.

Right to Buy was abolished in Scotland in 2016 and in Wales in 2019, so council and housing association tenants there can no longer buy their homes under those schemes. Northern Ireland has operated its own house sales scheme with its own rules. In England the scheme continues for eligible secure council tenants, and there is a separate Right to Acquire for some housing association tenants with a smaller, fixed discount.

Discount levels, maximum caps and the qualifying period in England have changed with government policy more than once, and they can change again. Treat any specific figure you read as needing confirmation. Check the current position on GOV.UK or ask your landlord directly, and rely on the offer notice they send you rather than an estimate.

The mechanism is straightforward. Your landlord values the property at open market value, applies your discount, and offers you the property at the reduced price.

Take an illustrative example. The property is valued at 180,000 pounds and your discount is 40,000 pounds, so your purchase price is 140,000 pounds.

Most lenders that support Right to Buy will lend up to 100 per cent of that 140,000 pound purchase price, because the 40,000 pound discount represents instant equity. In loan to value terms against the true market value, a 140,000 pound loan on a 180,000 pound property is about 78 per cent, which is why lenders are comfortable with it despite the absence of a cash deposit.

Two limits catch people out. First, many lenders cap the loan at the purchase price and will not lend extra for home improvements, debt consolidation or fees, so any money you want on top usually has to come from savings. Second, some lenders apply their own maximum against open market value as well as against the purchase price, which can reduce the loan below the discounted price if the discount is small.

Adding cash of your own still helps. On the example above, 10,000 pounds of savings takes the loan to 130,000 pounds, which is 72 per cent of market value and may put you into a better rate band.

The discount solves the deposit. It does not solve affordability. Lenders will assess your income, credit history and outgoings exactly as they would for any residential purchase, and the mortgage payment will often be more than the rent you have been paying.

Budget for the things a tenant does not pay: buildings insurance, all repairs and maintenance, and on a flat, the service charge and any share of major works. Councils can bill leaseholders for a share of block-wide works such as roofs, lifts or window replacement, and those bills can run to thousands of pounds. Ask for the history of major works and any planned programme before you commit.

A reasonable number of high street and specialist lenders support Right to Buy purchases, but the panel is smaller than for ordinary residential mortgages, and each has its own rules on maximum loan, acceptable property types and whether they will accept applicants with adverse credit.

Lenders will want to see the offer notice from your landlord, showing the market value, the discount and the price. They will also run their own valuation, and this is where cases most often fail rather than on affordability.

Buying a flat under Right to Buy means buying a lease, typically granted for around 125 years. Because many of these leases were granted decades ago, the remaining term is the issue.

Lenders set minimum unexpired lease terms. A common approach is to require a term that extends a set number of years beyond the end of the mortgage, often 30 or 40 years, which in practice means most lenders want a good deal more than 70 years remaining. A short lease also gets harder and more expensive to extend the shorter it becomes, and it damages resale value.

Check the lease term on the offer notice and raise it with your broker before you apply, not after a valuation comes back with a comment on it.

Ex-local-authority stock includes a lot of building types that mainstream lenders treat cautiously or decline outright. The valuer will identify the construction, and the answer can end the application.

Common problem areas include:

• Non-standard construction, including large panel system blocks, precast reinforced concrete types such as Airey and Wates, no-fines concrete and steel-framed housing
• High-rise blocks, where many lenders apply a maximum number of storeys, and blocks without a lift
• Deck access or walkway blocks
• Flats above or adjacent to commercial premises
• Blocks where only a small proportion of flats are privately owned, since some lenders set a minimum percentage
• Buildings with outstanding cladding or fire safety issues, where lenders will want the relevant documentation

None of these is automatically fatal. Some lenders are considerably more flexible than others, and specialist lenders exist precisely for this stock. But it does mean the choice of lender should follow from the property, not from a best buy table.

The discount comes with a condition. If you sell within a defined period after buying, you repay some or all of the discount.

The usual mechanism in England has been a sliding scale over the first few years, with the full discount repayable if you sell in the first year and a reducing proportion in each following year. Importantly, repayment is normally calculated as a percentage of the resale value at the time you sell, not as a fixed cash amount, so if the property has risen in value you repay more than you received.

There has also been a right of first refusal, requiring you to offer the property back to your former landlord for a period after purchase.

Both the length of the repayment period and the percentages have been changed by government policy, so confirm the current terms in your offer notice and with your landlord rather than assuming the figures you have heard from a neighbour who bought years ago.

Remortgaging during the repayment period is possible, but the landlord usually holds a charge over the property, and some lenders will not lend while it remains. It is another reason to check the lender's position early.

Right to Buy purchases run to statutory timescales, and the offer notice has a limited life. Get a mortgage agreement in principle before or shortly after your offer notice arrives, instruct a conveyancer who has handled Right to Buy before, and deal with lease and construction questions at the start rather than at valuation stage.

Because the lender panel is narrower and the property itself often drives the decision, the MortgageMatch directory is a sensible place to find an FCA-authorised broker with Right to Buy experience. Buying your own home is regulated lending, so you are entitled to proper advice, and on this type of purchase it makes a real difference.