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The right to buy and the Statutory House Sales Scheme
Who has the right to buy (The Statutory House Sales Scheme in Northern Ireland)
As a public sector tenant you will probably have the right to buy if you are a secure tenant of:-
a district council
a London borough council
a non-charitable housing association
a housing action trust
in Northern Ireland, the Northern Ireland Housing Executive.
You have the right to buy if you have been a public sector tenant for at least two years. This need not necessarily have been in your present accommodation. A tenancy with another public sector landlord can be included in this time.
As a tenant you will not have the right to buy if you are:-
a housing association tenant whose tenancy began on or after 15 January 1989
a tenant of a property owned by a charity, although you may be entitled to a lump sum grant to help you buy on the open market
a tenant of sheltered housing or housing specifically designated for the elderly.
If you are not sure whether you have the right to buy you should check with your landlord which category you fit into.
Discounts
As a tenant with a right to buy you will get a discount on the price of the property. If you live in a house the discount will be between 32% and 60%, depending on how long you have lived there. If you live in a flat the discount will be between 44% and 70%, depending on how long you have lived there. The discount will not exceed the regional upper limits, which range from ?16,000 to ?38,000. In Northern Ireland, the upper limit for discount is ?34,000.
If you exercise the right to buy and sell the property within three years you will have to repay all or some of the discount.
How to pay
As a tenant who wants to exercise your right to buy you should try to obtain a mortgage from a building society or high street bank. You could also contact a mortgage broker to see if they can arrange a mortgage.
However, if you cannot afford to buy the property outright you can still buy under the rent to mortgage scheme. Under this scheme you can buy a share of the property and make mortgage repayments on the amount you have borrowed for this. The landlord will retain ownership of the remaining share of the property.
How to apply
In England and Wales, if you want to apply for the right to buy you should ask your landlord for the Right to Buy Claim Form (Form RTB1) or a house sales application form in Northern Ireland. The landlord must provide it.
The right to acquire
As a secure or assured tenant of a registered social landlord, for example, a housing association or a local housing company, you may have the right to buy your home under a different scheme called the ?right to acquire?. The right to acquire only applies to a limited number of properties, for example, homes built with public funds on or after 1 April 1997.
Mortgages
If you wish to buy a home you may be able to borrow money to do this. The borrower offers the home as security against the loan. The lender has a legal charge against the property, that is, if you do not keep up the agreed repayments, the lender can take possession of the property. This is known as a mortgage. The loan will be for a fixed period and the borrower will be charged interest on the loan.
Types of mortgages
There are several types of mortgage available. The most common are:-
Repayment mortgage.
This is a mortgage in which the capital borrowed is repaid gradually over the period of the loan. The capital is paid in monthly instalments together with an amount of interest. The amount of capital which is repaid gradually increases over the years while the amount of interest goes down
Endowment mortgage.
This mortgage consists of two parts: the loan from the building society and an endowment policy taken out with an insurance company. You pay interest on the loan in monthly instalments to the building society but do not actually pay off any of the loan. The endowment policy is also paid monthly to the insurance company. At the end of the period of the mortgage the policy matures and produces a lump sum which pays off the loan to the building society and may, in some circumstances, produce an additional lump sum
pension mortgage. This mortgage is primarily for self-employed people. The monthly payments consist of interest payments on the loan and contributions to a pension scheme. When the borrower retires there is a lump sum to pay off the loan and a pension.
Where to get a mortgage from
A mortgage could be available from a number of different sources. Some of the available options are:-
building societies
banks
insurance companies. They only provide endowment mortgages (see above)
large building companies might arrange mortgages on their own new-build homes
finance houses
specialised mortgage companies.
If you intend getting a mortgage you should make sure you investigate the different options available. Clicking on the links featured here will provide information and help.
Using a broker to get a mortgage
Instead of going directly to a lender such as a building society for a mortgage, a broker could be used. A broker may be an estate agent, or a mortgage or insurance broker. They will act as an agent to introduce people to a source of mortgage loan to help them buy a home.
A broker may be used when it could be difficult obtaining a mortgage directly from a lender, for example:-
the mortgage required is particularly large
the property is unusual in some way
more than two people wish to jointly purchase the home
the applicant is self-employed and their income fluctuates.
There are rules about how much a broker can charge for their services.
If you are thinking of using a mortgage broker you should consult an experienced adviser and ask to see their qualifications.
There are many considerations when considering becoming a home owner instead of a tenant. The links are great sites to help you gather the all important information you will need so you are able to make the correct decisions.
It is important to determine from the beginning the true cost of buying a home. Yes off course there is the affordability of your mortgage payments and which mortgage suits you best to consider but what othere costs before you move in will there be.
You will have to pay solicitors fees; professional services are essential for this important transaction and good solicitors do cost a fair few hundred pounds. This is usually in the region of ?400.00 plus VAT per transaction but will vary from solicitor to solicitor.
Stamp Duty; payable to the government this tax starts on properties over 60k ? 1% being payable in tax, rising to 3% for properties of ?250,000 or more.
Searches: your solicitor will carry these out for you and the cost is around ?150.00 for straight forward searches.
Valuation fee: this is paid to your lender who will value the property to establish if it is mortgagable and whether it is worth what you are being asked to pay for it. Please remember this is not a survey and is not for your protection or information. If you require a survey you will be expected to pay extra for this.
Land registry: all land in the UK has to be registered and the cost to do this is usually about ?150.00 but will vary.
Buying your home is probably the biggest and most important financial transaction you will ever enter into.
As you may be aware the mortgage market offers the homebuyer a wide choice of plans with complex and bewildering methods of repayment schemes and associated benefits.
Great care must be taken as any mistake could prove costly in the future and you need to know which plan best suits your circumstances.
High Streets are crowded with Banks, Building Societies and Estate Agents offering a wide range of Mortgage deals and financial advice.
Banks and Building Societies can generally only offer one lender - themselves. Estate agents can sometimes offer a number of lenders, but like Banks they are normally limited to one individual Insurance Company, giving you little or no choice when considering the most appropriate and cost efficient policy, such as a suitable life or critical illness assurance policy, Endowment, Pension or PEP plan.
Independent mortgage brokers are not tied to any single Bank, Building Society but may be tied to one Insurance Company so you will know that the advice available through us is not only extensive but also impartial.
So by arranging your Mortgage through some of the links here you can be confident that any stress or anxiety in finding the most suitable mortgage can be alleviated, and rest assured, we will act on your behalf and in your best interests at all times.
Independents can electronically access literally hundreds of lenders and thousands of products using our in house computer software.
The following is an introductory guide to Mortgages and covers most areas relevant to buying your new home. It is by no means exhaustive; the main aim is to provide you with an insight into mortgages and the mortgage market without the jargon and complex explanations that accompany the vast array of literature that you would undoubtedly find yourself with if you attempted to secure a mortgage yourself.
How much can you borrow?
As a general rule, if you are buying on your own, most lenders will lend you up to three times your gross annual income or if you are self-employed your net profit. For example:
Income = ?20,000 x 3 = ?60,000.
If you are considering a joint mortgage, you, or you and your partner can borrow three times the first or main income plus one times the second or two and a half times the joint income, which ever is the greater. For example:
1st Income = ?20,000 x 3 = ?60,000
2nd Income = ?15,000 x 1 = ?15,000
TOTAL = ?75,000
Or
?20,000 + ?15,000 = ?35,000
?35,000 x 2.5 = ?87,500
Lenders will also take into account your ability and intent to service the Mortgage. Here they will looking at previous or existing loans and will conduct a credit search to establish how these loans were managed.
Deposit:
Most lenders are looking for a financial commitment from potential borrowers in the form of deposit. Normally the minimum deposit a lender would require would be 5% of the purchase price. There are however lenders that will provide 100% mortgages, but they tend to be more expensive and more difficult to obtain.
Interest Rates:
Standard Variable Rates:
If you opt for this method the amount of interest you pay fluctuates from time to time in line with interest rates generally available in the market, which can often make budgeting difficult, as your monthly mortgage payments can increase, sometimes significantly and with little prior notice.
Fixed Interest Rates:
With a fixed rate mortgage, you pay a constant rate of interest over a specific period, e.g. 1 year, 2 years, 5 years, etc. By fixing your mortgage interest rate, you know exactly what you are repaying for the fixed period. However, there is a risk that interest rates may drop below the level you are fixed at causing you to end up paying more than the variable rate. There may be redemption penalties if you decide to repay your mortgage early or switch to another lender during the fixed rate period At the end of the fixed rate period, you normally revert to the standard variable rate. The general rule of thumb with fixed rate mortgages is that the longer you fix for the higher the rate.
Capped Interest Rates:
Capped interest rates are similar to a fixed rate loan in that you have a ceiling on the interest rate above which it will not rise. But if interest rates fall below the capped rate, your rate will also decrease accordingly. This benefits you by not allowing your monthly payments to rise above a certain amount, i.e. the capped rate, but if during the capped rate period rates are lower than your capped rate then you pay interest on the lower rate.
Discounted Variables:
Most lenders are offering discounts off of their standard variable rate for various purposes. Discounts can range from 0.25% to 5.0% for periods of 6 months to 5 years. The potential problem with a discounted variable rate mortgage is that the discount is given off of the standard variable rate, therefore if the standard variable rate was 8.0% and your discount 2.0%, then you would pay interest of 6.0%, however if the standard variable rate increased to say 12.0% you would have pay 10.0%, even though the discount still applied.
The repayment method
It is important to choose the most suitable mortgage type and the correct repayment method which best suits your future plans, budget and attitude to risk.
Primary Mortgages are:-
1. Capital Repayment
2. Interest only
i. Endowment
ii. Pension linked
iii.PEP linked
Capital Repayment:
Known as a repayment mortgage. You make a monthly payment to your mortgage lender, which covers the payment for interest due on the mortgage and a partial reduction to the capital.
In the early years your monthly payments are mainly interest with very little repaying the capital. But as the years go by, the capital starts to reduce, and therefore the interest due becomes less, allowing further reduction of the capital and so on. At the end of the term, normally 25 years, you will have repaid the Mortgage and the house is yours. This type of Mortgage does not include any protection and therefore it is strongly recommended that you take out some form of life assurance and critical illness benefit which can be used to pay off the outstanding mortgage balance if you die or contract a serious illness during the borrowing term.
Endowment mortgage:
With an endowment mortgage, you make two separate payments each month. This type of mortgage has received a lot of negative press and in todays low inflation, low interest environment are not as suitable as they used to be. You pay just interest to the lender on the money you have borrowed. This means that the amount you have borrowed neither increases nor decreases but remains constant. In addition to the interest payment, you also pay a separate premium to a life assurance company, who in turn, will provide you with life assurance and critical illness protection as well as the necessary strategy required to build up the value of the endowment investment plan until it reaches a cash in value equal to the amount borrowed.
Investment performance is the key as if the investment performance exceeds expectations then there is a very real possibility that your mortgage can be fully repaid early, or if it is left to maturity then you could end up with not only the mortgage repaid but a tax free cash lump sum as well. Life assurance companies review the performance of endowments at specific intervals, for example a 25 year endowment plan will normally be reviewed and checked for progress at 10 years, then year 15, then year 20 and finally each year for the last 5.
Pension Linked:
A pension mortgage shares certain similarities with an endowment mortgage, but offers additional tax benefits, such as income tax relief on the pension contributions.
The pension contribution is invested into a pension plan to build a fund of money. A percentage of this fund, typically 25%, can then provide the capital to repay the mortgage and the remainder of the fund can be used to provide a pension income at retirement. A personal pension plan does not automatically include life assurance or critical illness cover, therefore separate policies would be required. This type of repayment method is only really suitable for someone who is self employed or who is employed but does not have the benefit of being a member of their employers company pension scheme.
Beware of Redemption penalties these can be 1-6 month's gross interest
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