Richard Hayes managing director, Hadenglen Home Finance
Some 26 years on, the Right to Buy scheme is a legacy of Margaret Thatcher\'s tenure as Prime Minister, encouraging private home ownership among the public. More than 1.6 million people in England have bought homes under the Right to Buy scheme and it is estimated to have contributed more than 20bn in revenue to the government. The 1980 Housing Act gave tenants who had occupied a council property for two years or more the right to buy their home at a heavily discounted price. It targeted established council tenants with the discount increasing in proportion to the years they had been paying rent. The discounts for houses started at 32%, rising by 1% for every year of secured tenancy up to a maximum of 60%. For flats the discounts started at 44%, rising in 2% steps to a maximum of 70%. The value of the property to which the discount applied was set by the local authority and it had to represent genuine market value. The maximum discount was 50,000 which in the 1980s and 1990s was sufficient to allow most tenants to buy their homes. All too frequently we lose clients who have a sincere desire to buy their homes simply because the changes implemented since 2001 have made repayments unaffordable. The government must do more to help tenants or be honest and acknowledge that it no longer believes in the concept. It is not only tenants who come up against the system but also professionals. Councils often have a negative attitude towards specialised brokers or packagers such as Hadenglen, Regency or Council Home Buyers. They fail to understand that these packagers offer clients a complete service with account management and a customer relationship. To them, clients are seen as people, not just tenants with reference numbers. Brokers or packagers can deal with a purchase from start to finish. Packagers can take the stress out of the process by dealing directly with local authorities, lenders and solicitors on behalf of clients, guiding them every step of the way – usually in the comfort of their own home. Packagers are well equipped to deal with difficult and sluggish local authorities or landlords. By acting on behalf of clients, packagers can issue the relevant government chase-up forms (RTB 6 and RTB 8) when the paperwork is starting to fall by the wayside. With these forms, a landlord is formally warned that they are starting to breach the time guidelines set by the government and that ignoring these can mean financial penalties. To a tenant, buying a property can seem daunting. Clients need to feel they are getting the right advice and won’t be financially compromised. It is a mortgage company’s duty to ensure clients receive best advice and are kept informed. When it comes to arranging a mortgage for a client, the Right to Buy market is relatively straightforward. Right to Buy, unlike buy-to-let, is not a product type. Borrowers have the full array of prime and sub-prime lenders and products to choose from as well as discounts, fixed rates and trackers. Most lenders will allow tenants to borrow up to 100% of the purchase price and many will allow applicants to borrow above this for home improvements. There are many issues packagers must bear in mind when it comes to Right to Buy, including the nature of the property. Although the council will set a value for a property, lenders will want to ensure this represents an acceptable risk. For example, houses are generally acceptable if they are of standard construction whereas flats in large blocks can be hard to mortgage as the property may not be easy to sell on. In these circumstances, specialist lending is required and packagers need to understand the options available. Another issue to consider is the creditworthiness of borrowers. Most borrowers will not have had a mort- gage before and so not have a detailed credit history, which means lenders may be cautious. Borrowers with adverse records such as County Court judgements and rent arr- ears can also apply and brokers will need to consider sub-prime lenders such as Southern Pacific Mortgage Limited, Preferred, Mortgages PLC and High Street Home Loans. It is likely that the numbers of Right to Buy clients will steadily decline over the next 10 years. But with a notable decrease in the number of first-time buyers, the government can’t afford to demolish the essence of the scheme. With initiatives such as shared ownership and Homebuy, first-time buyers and low income households can get onto the property ladder. And given government pledges to get 400,000 people into affordable housing by 2010, this is still a vital market. The Conservatives propose to extend the Right to Buy scheme to more than a million housing association tenants and increase support for shared ownership. The party has also outlined proposals that will allow housing association tenants to own their own homes outright. Although the Labour government could be seen as doing its best to kill off Right to Buy, 70% of the population own homes so it is clear that most people still aspire to ownership. To coin a phase, an Englishman’s home is his castle – or at least he wants it to be. As to whether Right to Buy is a dying sector, that will be clarified at the next general election. With the Tories fully supporting Right to Buy and Labour continually moving the goalposts at the expense of tenants, the future of Right to Buy is in the hands of the voters. The barriers to Right to Buy Since 2001 the government has brought in a number of changes that have been detrimental to the ability of local authority tenants to buy their council properties. These include reducing the maximum discount to between 16,000 and 38,000, discounts failing to rise in line with increasing property prices and local authorities selling properties to housing associations. And the required length of tenancy has also increased from two years to five years. One of the biggest problems is local authorities selling public housing to local housing associations. Once a council transfers its housing to an association tenants are worse off. They still have a statutory right to buy their property at a discount, but that discount – at between 9,000 to 16,000 – is dramatically less than the council’s. The very people that the government is trying to help under its Sustainable Communities plan could be hindered to the tune of 29,000. Also, the Right to Buy scheme itself is unclear and time consuming. But other than a lengthy booklet, there is little guidance. Buying a home is daunting so the lack of guidance is enough to put off many potential buyers.