Right to Buy
The Right to Buy scheme in the UK is a government policy whereby secure tenants of council properties and some housing associations have the legal Right to Buy at a considerable discount on the home that they are living in. Since 1980 over a million and a half council homes in the UK have been sold in this way.
Brief history of Right to Buy
Local authorities across the UK have always had the ability to sell their council owned houses to their council tenants however it was not until the early 1970s that sales became more popular.
In 1959 the Labour Party, in its manifesto for the 1959 General Election, originally planned the idea of tenants being able to have the right to buy the house that they were living in however they subsequently lost the Election. The idea of being able to buy your council house was one that Horace Cutler, Chairman of Housing for Greater London Council (controlled by the Conservatives) in 1960 favoured as he did not agree with local authorities providing housing and championed a free market concept. The Labour administration in the mid 1970s did not allow Greater London Council houses to be sold however the concept was addressed again in 1977 when Horace Cutler became Leader. Margaret Thatcher who at this time was a MP for the north London Finchley and Friern Barnet Constituency was close to Cutler and the right to buy council housing soon became a national Conservation Party policy.
Council housing stock sales rose with approximately 7000 tenants buying their own homes during 1970 spiraling to over 45,000 two years later in 1972.
Right to Buy Thatcher Policy
Margaret Thatcher became Prime Minister in 1979 with legislation being passed in 1980 for the Right to Buy. The Housing Act 1980 opened up the opportunity for five million council house tenants across England and Wales to be able to purchase their council houses. The minister designated in charge of the Right to Buy policy was the minister for the Environment Michael Heseltine who believed that the legislation had two main goals: antithesis the tendency of ever mounting dominance of the state over the life of the individual and to give people what they wanted. Michael Heseltine also believed that “no single piece of legislation has enabled the transfer of so much capital wealth from the state to the people”. It is believed that approximately six million people were affected by the policy, which equated to roughly one in three who went ahead and purchased their local authority home.
The British love owning their homes
The Right to Buy policy embraced the populations desire to own their own homes. Michael Heseltine is quoted at the time stating that the government believed that “It reflects the wishes of the people, ensures the wide spread of wealth through society, encourages a personal desire to improve and modernize one’s own home, enables parents to accrue wealth for their children and stimulates the attitudes of independence and self-reliance that are the bedrock of a free society”.
Discount pricing policy for Right to Buy properties
Buying your local authority home had the benefit of a discount of between 33% to 50% on its market valuation which took into account the rents paid by the tenants and also as an incentive to buy. Another advantage of Right to Buy was that no down payments were required to gain mortgages; often tenants of local authority homes were on low income with deposits not readily available therefore this helped to enable this option become a reality.
Selling the Right to Buy property
A restriction was put in place whereby if a council tenant purchased their local authority home taking up the Right to Buy then if they were to sell the property before a minimum period of time then a proportion of the discount would be required to be paid back to the council. The amount of discount on the purchase price was relative to the time that the tenant had been paying rent living in the property. The Right to Buy policy was taken up by many tenants with hundreds of thousands of properties being sold and was one of the significant points of Thatcherism.
How did councils benefit from Right to Buy
Across England and Wales some of the Labour controlled councils tried to oppose the Right to Buy policy but the legislation stopped this from happening. Councils benefited from their tenants buying their homes gaining 50% of the sale with a larger amount of housing stock sold in the South and East of England than in the inner city of London and the North.
However the councils that gained money from the Right to Buy sales had restrictions on how they could use the funds so instead of building more homes they had to diminish their debt until it was cleared. As the Right to Buy policy was so successful in the south-east England and London housing stock was significantly reduced with little funding for new housing as well as rising rents and cuts to state benefits homelessness then became a growing issue.
Large numbers of council homes sold due to Right to Buy
The growing trend for tenants to buy their council properties meant that in 1982 approximately 200,000 homes had been sold and within another five years by 1987 more than one million. This trend however declined during the 1990s.
The Labour Party believed that the Right to Buy policy was wrong wishing to oppose this policy in the General Election of 1983 however later dropping this opposition in 1985. However the Thatcher government warned the electorate that Labour, if in power, would abolish the Right to Buy scheme as they knew it was a popular policy and one that they hoped would gain votes.
In 1997 the Labour Party took control of government winning the General Election and retained the Right to Buy scheme although reducing the discount in areas of the country where local authorities had little housing stock; particularly in most of London.
2005 onwards the Right to Buy scheme changes
In 2005 the Right to Buy regulations changed with tenants required to pay rent on their local authority home for a minimum period of 5 years to qualify to be able to buy. Another change was that if wishing to purchase their local authority property then the tenant after 2005 could not sell immediately their minimum period was completed on the open market they had to firstly offer the previous council landlord or housing association landlord the property giving them the “first right of refusal”.
Conveyance time for a Right to Buy property was reduced to three months from twelve months to help to speed up the process. The Financial Conduct Authority regulates and governs most forms of mortgage-selling. Some brokers and solicitors were charging excessive fees, which were deducted from the client’s discount and had become a widespread issue therefore the Financial Services Authority governance helped to solve this problem.
Localis Right to Buy amendments in 2009
An UK independent think tank founded in 2001 called Localis advised that the Right to Buy scheme should be reformed offering equity slivers that could be earned if tenants were good tenants.
More changes to Right to Buy scheme
The housing market’s slow down in the 2000’s/2010’s was felt to require a scheme to help revitalize the situation. Prime Minister David Cameron proposed at the 2011 Conservative Party Conference an increase in discounts offered to tenants wishing to buy their council property. This move was not totally without opposition with many social housing professionals concerned how this would impact the situation. The aim however was to use the money generated from the Right to Buy sales to spend on new social housing which was greatly required.
In April 2012 the decision to raise Right to Buy discount was implemented which equated to a maximum of £75,000 or 60% of the house value (70% if a flat/apartment) dependent upon which is lower. In London by March 2013 the decision was made to increase the maximum discount to £100,000.
The Right to Buy scheme’s aim to provide new homes for affordable rent with every home that was sold. With a large number of individuals and families on waiting lists for council properties the Right to Buy scheme hoped to alleviate the lack of social housing. The criteria of purchasers wishing to sell their property which they have bought from local authorities was to remain that if sold within five years of the purchase then part or all of the discount will be mandatory to be paid back.
Scotland abolishes Right to Buy
In Scotland the Right to Buy scheme abolishment is set for 2017.
Right to Buy – is it working?
The Right to Buy scheme has mixed reviews with criticism due to:-
- Council housing that is not sold under the Right to Buy scheme is often present in areas where unemployment is high which in turn makes the area undesirable and consequently isolates and stigmatizes the tenants.
- Council assets, which are commercially and socially valuable, can be sold below their market value or replacement cost.
- A hastening in the rise of property costs can occur with speculative investors buying up council properties via deferred transaction agreements.
Right to Buy to Buy to Let
Many homes bought under the scheme of Right to Buy have subsequently been let out by councils in London from private landlords which is extremely poor value for money for taxpayers. The findings of London Assembly’s Tom Copley’s report in January 2013 highlighted the concern that the Right to Buy scheme has assisted “to fuel the increase in the housing benefit bill” which in turn has put more pressure on local authority waiting lists with additional Londoners having no option other than to rent in the private sector which is under-regulated.
Are you eligible to buy your council property under the Right to Buy scheme?
The government website www.righttobuy.communities.gov.uk is clear and provides information to help you find out if you are eligible, how much this will cost and how to apply.
The British love of owning your own home is still a dream for many and if you are fortunate enough to live in a council property then not having to pay rent and eventually owning your home is an attractive proposition for many.
Surveys of Right to Buy properties
Our independent Surveyors are experts in local authority built houses and flats and will help you advising on the condition of the property, ways to improve the building and how to be able to make the property attractive to mortgage lenders and purchasers in the future should you wish to sell.
If you are concerned about thermal efficiency our expert building surveyors can help too which will enable you to enjoy your home and save money too.