What is Right to Buy?
Right to Buy is a government housing scheme that’s been around since Margaret Thatcher introduced it forty years ago. It’s had its fair share of controversy due to its impact on the supply of social housing, but for many tenants it’s an appealing route from renting to home ownership.
It allows long-term council and housing association tenants to purchase the property they’re living in at a discounted rate. The size of the discount varies depending on location and property type.
How much does Right to Buy cost?
Working out how much Right to Buy will cost you is one of the first things you should do when deciding whether it’s right for you, and there are a number of different things you should consider. The costs can be largely split into two categories – those you’ll need for the purchase, and those you’ll need afterwards.
The cost of the purchase
The biggest cost is, of course, the deposit. Because of the discount, working out how much you’ll need isn’t as straightforward as with a regular purchase.
You should first work out how much the property will cost. The maximum discount you can get is £84,200 (£112,300 in London).
The government have a Right to Buy calculator to give you a rough idea of how much the property will cost you.
To use the calculator you’ll need to estimate the value of your home. You might find it useful to use online property portals like Rightmove or Zoopla to see what similar properties in your area are going for.
Once you apply for Right to Buy your landlord will get the property valued. Be aware that this could come out as more or less than your own estimate, so don’t make any firm financial or legal plans until this has been done.
Once you’ve used the calculator to get your rough figure for the cost of your Right to Buy property, you should work out how much you’ll need to save as a deposit.
Most lenders will require a deposit of at least 5%, but if you can you should aim for more. The bigger the deposit the less you’ll be borrowing from the mortgage lender. Because this will make you less of a risk for them, the interest will be lower and therefore cheaper for you in the long run.
Stamp Duty Land Tax is the tax paid on most property transactions in England and Northern Ireland (Wales and Scotland have their own versions). If you’re a First Time Buyer you may well be exempt from Stamp Duty. However it’s still worth checking, as, if you’re not exempt, it could end up being the second biggest sum of money you pay.
Stamp Duty is worked out as a percentage of the property price. The percentage depends on what price band the property falls into – for example, houses with a price of £500,000-£925,000 are taxed at 5%, whilst £925,001-£1,500,000 are taxed at 10%. You can use our Stamp Duty Calculator to work out how much Stamp Duty you’ll need to pay. When you put in the property price, put in the price of your property with the discount applied. If you decide to purchase your property with Right to Buy then you’ll be taxed at this reduced rate – you just need to put relief code ‘22’ on the Stamp Duty Land Tax form.
Read more in our complete guide to Stamp Duty.
You’ll need a Licenced Conveyancer or a Conveyancing Solicitor to deal with the legal aspects of the transaction for you. This can be several hundred pounds, but will vary depending on the firm and the complexity of the transaction.
It’s a good idea to get quotes for this earlier on, so you can be prepared for the cost and be sure you’re getting the best price.
Most people get a property surveyed by a Chartered Surveyor before they purchase it. That way they can be sure there are no hidden problems that might be costly to fix.
If you’ve lived in the property for a long time, you might think you don’t need a survey. But it’s a really good idea, no matter how well you know the property. A Chartered Surveyor will be able to spot problems that aren’t obvious to you, or even areas that aren’t problematic yet but could cause difficulty in a few years’ time.
It's really good to have that peace of mind that everything is at it seems. If the survey does pick up problems, you might be able to negotiate a lower price.
Read more about the benefits of getting a survey.
The cost of a survey varies depending the property size, the surveying firm, and the type of survey you get. You can get quotes from reallymoving to ensure you’re getting the best price.
If you’re using a mortgage to buy your property, there may well be set up fees associated with this, for example a valuation fee or arrangement costs. Talk to your lender and make sure you’re totally clear on how much this will be. Read more in our guide to mortgage fees and costs.
We’ve got loads more information to take you through the process of finding a mortgage.
After the purchase
It’s important to consider how owning your property will affect your financial situation. Whilst owning your home will give you financial security, there are a few other things to consider.
You’ll begin paying back your mortgage, with interest, in monthly instalments. You should be sure to find out how much this will be before signing anything, as if you fail to keep up with them your home may be repossessed. Budget carefully before you commit to the transaction to be sure you can afford the repayments. It’s also good to make sure that you have a financial safety net – if you lost your job would you be ok for a few months?
Service charge or ground rent
If you’re purchasing a leasehold property there might be additional costs like ground rent or maintenance charges.
Houses may be leasehold, whereas flats almost certainly will be.
Remember to check this out before committing to a sale – sometimes the costs can be hidden but surprisingly high.
Read more about the differences between leasehold and freehold.
Cost of maintaining a property
This might sound silly, but previously if something went wrong with the property it was your landlord’s responsibility to fix (and probably pay for). But if you own the property it’ll be yours. You’ll need a slightly bigger financial buffer in case, for example, the roof needs fixing or the boiler needs replacing. Make sure you can afford this alongside your other costs.
Remember that you’ll be paying for all these regular costs alongside your normal living expenses, for example food, travel and bills. Make sure you can afford them all comfortably before committing to anything. Also remember that if you’re a homeowner you won’t be eligible for housing benefit. If you were previously on this, make sure you’ll be ok without it.
Right to Buy can be a great scheme for lots of people, but don’t be blinded by the discount – it’s still a costly process and one you should properly budget for before committing. But with saving and careful preparation, you could be the proud owner of your own home.