Right To Buy Mortgages
If you are exercising your right to buy your council home then you'll need a Right To Buy Mortgage. Before you start searching for a suitable mortgage you need to be in receipt of your Right To Buy Papers also called Section 125 letter.
The letter will explain how much the council has valued the property for, and how much you're buying it for after the Right to Buy discount.
Market price and the council's price...
You need to know what the market value of your property is - do some research, speak to some local estate agents to find out the market price.
The market price will in almost all cases be higher than the council's valuation of the property which is good because a Right To Buy mortgage will give you lending based on the market price of the property not the council's valuation.
You don't need a deposit...
What this means is that you don't have to put down a deposit when buying your property as you can use the gap between the discounted council price and the market price as your deposit instead.
E.g. Lets say the council values your property at £120,000, and you are getting £16,000 discount.
Let's say that you have spoken to several estate agents in your area and believe the market value of your property is £150,000:
| Market price | £150,000 |
| Council price | £120,000 |
| Discount | £16,000 |
| Discounted price | £104,000 (Council price minus the discount) |
Gap between market price and discounted price: £46,000
You will be able to borrow the full discounted price of £104,000 to buy your property from the council and can use the gap between the market price and the discounted price as a deposit, which in the above example would be £46,000.
If you want to borrow more...
You also have the option of borrowing more than the discounted purchase price in case you wanted to raise money for home improvements.
All that happens in this case is that you simply state how much extra you want to raise for home improvements and this amount will be added onto your mortgage.
So if in the above example you wanted to raise £10,000 for a new kitchen, bathroom and complete renovation then instead of getting a mortgage for £104,000 you would get a mortgage for £114,000.
Lenders will put a limit as to how much extra you can raise above the discounted purchase price and will insist that any money raised be spent on home improvements and may even ask you to provide quotes for work needing to be done.
Lending options...
Your lending options are wide but driven by your income. As a general rule, you'll be able to borrow around 5 times your income although there are some lenders who will lend you more.
You can get a mortgage with a high street bank if you have clean credit or with an adverse credit lender if you have bad credit. You can also get a self cert mortgage if you cannot prove your income.
The interest rates vary depending on your circumstances, income, occupation and credit history.
Lenders will request for a rent reference as part of the application procedure so if you have rent arrears then this will act to increase the interest rate on your mortgage. If you have been claiming housing benefit in the last 12 months then this will also increase the interest rate on your mortgage.
House or flat...
Whether your property is a house or a flat affects your lending options. Most lenders will lend on a council Right to Buy house but very few will lend on a flat.
This is because lenders view flats as being less marketable than houses and in their eyes present a high risk for lending.
If your property is a flat in a tower block or on a high floor level or made of concrete then your lending options are several restricted.
There are currently only 3 lenders that will lend on a flat in a tower block and the interest rate is very high.
Because Right to Buy is a specialist area, it is advisable for you to speak to an adviser who can inform you of your options specific to you.
To get personal advice on a Right To Buy mortgage click here.