Right To Buy mortgages explained

By: UK Property Finance

Date: 29 August 2019

A young excited couple move into their first home after buying it using Right to Buy.Prospective homeowners who qualify under the UK government’s Right to Buy scheme are required to finance their property purchase in the usual way. This means organising a suitable Right to Buy mortgage, along with the legal support and advice needed to facilitate the transaction.

But how exactly does a Right to Buy mortgage differ from a traditional mortgage? More importantly, to what extent is a Right to Buy a property purchase more affordable and accessible than a conventional home purchase? We explain.

Right to Buy mortgages defined

Technically speaking, there’s no such thing as a “Right to Buy mortgage”. Purchasing a property under the Right to Buy scheme is pretty much identical to purchasing a home in any other way, though with a few added perks for those who qualify.

In terms of discounts, it is possible to qualify for anything from 35% up to 70% of the total value of your home - amounting to a maximum available discount of £80,900 (or £108,000 if you live in London). This could, therefore, significantly improve your chances of getting on the property ladder.

Still, it all depends on whether you can both qualify for and afford a mortgage. Using a mortgage calculator can be useful for evaluating the costs of home ownership, while qualification is a lender-specific issue.

Nevertheless, you may find it much easier to qualify for a mortgage under the Right to Buy scheme than a traditional mortgage… and for one very important reason.

Deposit exemptions

For most first-time buyers in the UK, the most prohibitive aspect of buying a home is coming up with the deposit. It’s not uncommon for lenders to demand 10% or 20% of the property’s value in the form of an upfront payment. On a home with a value of, say, £200,000, this could mean saving a minimum of £40,000 - which for many households is simply impossible.

With Right to Buy mortgages, things work a little differently. Say your council property may have been valued at £200,000. Depending on your length of tenancy, you may qualify for a discount of up to £80,000. As this amounts to significantly more than the 20% deposit requirement of the lender, they won’t demand a deposit from the applicant.

Terms, conditions and policies vary significantly from one lender to the next, but most are happy to accept Right to Buy discounts as deposits on qualifying properties. This immediately eliminates one of the single biggest obstacles on the journey to home ownership for qualifying tenants.

General eligibility requirements

Of course, this doesn’t have any real influence on your general eligibility for a mortgage. If you intend to buy your home under Right to Buy, you will still need to demonstrate that you are able to comfortably meet your repayment obligations. This means providing extensive proof of income and confirming that you are not currently struggling with multiple debts and that you have a decent financial track record.

Speaking of which, you also need to carefully consider your credit history. Irrespective of the value of your property and the amount you need to borrow, your credit score will play a role in determining both your eligibility and the overall costs of your mortgage.

If you have a poor credit score, you are considered a ‘subprime’ applicant and a higher-risk borrower. As a result, it’s important to focus your attention on subprime lenders. An extensive network of poor credit mortgage specialists operate in the UK, though most are not on the average high street. It pays to take your enquiry to an independent broker, in order to find the best possible deal.

Ask the experts

Organising a property purchase under the Right to Buy scheme can be tricky, as can arranging a mortgage. This is why it is advisable to consult with an independent specialist at the earliest possible stage, in order to determine the best course of action and to find the best deal to suit your budget.

Going it alone is one option, but can make the journey to home ownership surprisingly complex.

Copyright 2019. Article provided by UK Property Finance

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