Right to Buy mortgages

How Right to Buy works

You apply to your landlord, who issues an offer at the open market valuation less the statutory discount. The discount is based on length of tenancy and property type, with a maximum cap that is reviewed by government from time to time. The Section 125 notice (the formal offer) lists the discounted purchase price and the terms. You have twelve weeks to accept and proceed.

The discount as deposit

Most Right to Buy lenders accept the discount as a deposit contribution on the loan against discounted purchase price. So if a property values at £300,000 and your discount is £80,000, the discounted price is £220,000 and most lenders will lend up to 100% of £220,000. Some lenders will also lend a small additional amount for fees or improvements, on a case-by-case basis.

Worked example, £300,000 property with £80,000 discount

Open market value £300,000, statutory discount £80,000, discounted purchase price £220,000. Most Right to Buy lenders treat the discount as your deposit and lend up to 100% of £220,000. So the buyer needs no cash deposit (other than fees). Some lenders also lend a small further amount for legal fees, building survey, and a modest improvement budget, perhaps an extra £5,000 to £10,000. SDLT (Stamp Duty Land Tax) is calculated on the discounted price, not the open market value, so on a £220,000 SDLT bill is around £1,900 (with no first-time buyer relief if you have owned the home as a tenant for many years; check first-time buyer eligibility carefully).

Discount clawback

If you sell within five years of completion, the discount is clawed back on a sliding scale (100% in year one, 80% in year two, down to 20% in year five). Most Right to Buy lenders are comfortable with this; you simply repay from the sale proceeds. We brief you on the timing rules so you do not get caught.

Affordability and rate

Standard residential affordability tests apply: income multiples, stress rates, outgoings. Rates are usually standard residential rates with no Right to Buy premium, although the lender pool is narrower so the cheapest rate in the wider market is not always available. We benchmark realistically.

Property types and lender appetite

Houses and standard flats are widely accepted. High-rise flats, ex-local-authority blocks, deck-access flats, balcony-access flats and some non-standard construction (concrete frame, steel frame) narrow the lender pool. We check eligibility by property type before applying.

Five-year planning

If you might sell or refinance within five years, plan around the clawback. We model the all-in cost of selling at year three versus year six and let you see the trade-off properly.

Common pitfalls we see

Picking a lender that does not accept the property type (high-rise, deck-access, concrete-frame all narrow the pool). Forgetting that the discount has to be repaid pro-rata if you sell early. Underestimating the building survey importance for older ex-local-authority stock. Not pulling the historical service charge for ex-local-authority flats; major-works bills can run into tens of thousands and lenders may want to see disclosed estimates. We work all four.