In This Article
What is a mortgage for right to buy?
The government launched the Right to Buy scheme to allow people that have been renting their homes to buy their properties at a discounted price.
This is a way of allowing tenants from council properties or housing associations to get on the property ladder when they may have otherwise been unable to do so.
A right to buy mortgage may be needed to facilitate the difference in the value of the property and the price that you need to pay.
For example, if the property value is £250,000 and the housing association is offering a discount of 50%, you may need a mortgage of £125,000 to be able to buy the property.
Some lenders can offer residential right to buy mortgages to allow this to happen.
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Is right to buy a good idea?
Right to buy is generally considered a good idea to take advantage of when you are in the position to do so.
The reason is properties on offer are discounted meaning that you are getting equity within it from the outset.
If you were to try to buy the property elsewhere, you would be paying a lot more for it as you would be buying it at the full market value.
For instance, you have been offered the opportunity to buy your council house valued at £300,000 with a 40% discount, which means a purchase price of £180,000. This equates to an immediate portion of equity within the property to the value of £120,000.
Should you keep this property for long enough, when you come to sell the property, you will be the owner of the sales proceeds.
You need to keep the property for at least 5 years to not need to repay the council or housing association a percentage of the discount that you received.
The amount of the discount that you would need to pay back following a sale within 5 years is staggered and reduces each year until the five-year period has passed.
Can you get an adverse mortgage for right to buy?
It is possible to get right to buy mortgages for people with adverse credit. Adverse credit comes in all shapes and sizes so always best to talk with a professional mortgage adviser if you have had bad credit in the past.
Bad credit can be many things. It may mean bankruptcies, individual voluntary arrangements, County Court judgements, arrears, defaults or even debt management plans.
Some adverse credit is considered more significant than other adverse credit. For instance, missed payments on a phone bill are not considered as serious as a repossession of a house.
Lenders would need to get a full idea of what the credit was and why it happened.
They would need to know to who adverse credit was payable, the amount that it was for, whether it has been repaid and why it happened in the first place.
To find out more about your credit history, you can go to Check My File.
Make sure to tell your mortgage adviser the full situation to give them the best chance of placing the mortgage.
If I take a right mortgage to buy can I sell the property at any time?
Councils and housing associations put a time restriction on the sale period of a right to buy property to stop people from taking advantage and cashing out shortly after.
As the scheme is designed to help people get on the property Ladder that wouldn’t otherwise be able to do so, they do not like people to sell immediately just to make money.
Once you’ve owned a property for 5 years, you are free to sell the property without needing to repay any of the discounts that you pay.
If you sell within 5 years, the amount that you repay to the housing association or the council reduces each year in 20% increments.
Can I get a buy to let mortgage for a right to buy property?
Buy to let mortgage lenders will not offer you a mortgage on a right to buy property.
The reason is that the housing association or Council are offering you this discount to help you buy the home that you live in.
It’s not being offered to you to help you buy an investment property and it would not be offered to you if you were to own another property or plan to rent this one out.
As a result, if you apply for a buy to let mortgage on a council or housing association property that you lived in that you were buying for a discount, the mortgage would not be offered.
Do I need to put in my own deposit if taking a mortgage to buy a right to buy property?
Some lenders are willing to lend 100% of the purchase price of the right to buy property using the Equity within it as for deposit.
For example, if you were buying a right to buy valued at £320,000 with a 35% discount, some lenders will allow that discount of £112,000 as the deposit requiring a mortgage of £208,000.
This could be helpful for buyers that have a sufficient income to qualify for the £208,000 mortgage but do not have access to deposit funds themselves.
If you have been offered the opportunity to buy your right to buy property, it would be recommended to look for a competent mortgage adviser who can tell you your options around borrowing amounts and what you would need to put down as a deposit.
Please complete the contact form if you would like I NEED ADVICE to match you with a qualified mortgage adviser.
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Do you need a certain type of mortgage adviser when buying a right to buy property?
You do not necessarily need a special type of mortgage adviser when buying a right to buy property but you should always look for an adviser that has the relevant experience to place a transaction like yours.
Not every mortgage adviser will advise on right to buy properties and your situation or the mortgage required may be more complex than others.
For example, if you have adverse credit or multiple streams of income, a lender may be willing to lend to you.
An experienced mortgage adviser will be able to get a full understanding of your individual situation to make a recommendation accordingly.
It would be recommended to ask the broker their relevant experience in a transaction similar to yours when speaking with them.
Conclusion
It can be possible to get right to buy mortgages for up to 100% of the discounted price of the property. There are time limits on when you can sell the property so make sure you do your research when buying one.
When considering a mortgage for a right to buy property, you should always take professional advice.
If you would like I NEED ADVICE to match you with a mortgage adviser with experience in right to buy mortgages, please complete the contact form.
The information on this page is not tailored to any individual readers and should not be considered financial advice under any circumstances.
If you are seeking advice about a mortgage, you should consult a qualified professional.
