Housing Bill - Changes in the Right To Buy Scheme

Presently council tenants are able to purchase their rented property after 2 years of tenancy. However, this is about to change. As of the 18th January 2005, the new Housing Bill becomes law and the current 2 years will change to a period of 5 years. This means, that once the proposals come into force, any new council tenant will have to wait 5 years before having the option of buying their property.

There is also a proposal to extend the period during which landlords can require owners to repay some or all, of the discount given on a property in the case of an early resale.

Currently, purchasers of a property that has been bought on the right to buy scheme, can sell after 3 years with no requirement to make any repayments of the discount. The proposal suggests this should be extended to 5 years. Therefore, anyone who sells a property bought under the right to buy scheme within 5 years of the purchase, will be requested to repay a percentage of the given discount. Repayment figures are as follows: -

Currently

• Sale within the 1st year – 100%
• Sale within the 2nd year – 66%
• Sale within the 3rd year – 33%

Proposal amounts

• Sale within the 1st year – 100%
• Sale within the 2nd year - 80%
• Sale within the 3rd year - 60%
• Sale within the 4th year - 40%
• Sale within the 5th year – 20%

With the predicted drop in house prices in 2005 meaning lower property valuations combined with the new proposals further restrictions on council tenants wishing to purchase, now may be a good time to consider a right to buy.

The proposed changes in the right to buy scheme include measures to reduce the attraction of purchasing a discounted property with the prospect of selling it to make a profit.

The initial idea of the right to buy scheme was to give ordinary families the opportunity to own their own homes, something they may not have been able to afford otherwise. However there are concerns about the effects this has had on local housing stock and a number of people profiteering from potential windfalls in expensive property areas.

Exploitation in the Right to Buy Scheme

There have been several schemes where third party companies encourage tenants to purchase their homes under the right to buy scheme, by offering them cash incentives. The tenant purchases the property at a discounted price under the right to buy scheme and simultaneously exchanges contracts to sell the property to the company after 3 years at which point no discount penalty will be repayable. The tenant will lease the property to the company and move out of the home with a cash sum. This leaves the company free to rent out the property at the current market rental rates.

After three years the tenant sells the property to the company. The company will either continue to rent the property at market rates or the property will be sold on at a substantial profit.

The incentive for the tenant is the lump sum offered, which can be anywhere from £5000 to £26000 but is usually a percentage of the equity of the purchased property. This could be attractive to tenants who do not wish to purchase their current home or hope to purchase a property in another area as it will give them a ready made deposit to buy another home.

The new proposals are designed to make this type of sale less attractive and prevent profiteering as well as securing local housing for the less well off.

The proposed changes in section 180 and 182-189 of the Housing Act 2004 will come into effect on 18/1/2005.

For more information on a right to buy mortgage, visit Right To Buy http://www.right-2-buy.co.uk website.