Right to Buy Mortgages  Future Implications

Right To Buy Mortgages

The right to buy scheme for council tenants, with discounts high and rates low, now could be the perfect time to buy your council home using a right to buy mortgage...

Future Implications

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Once the right to buy has been exercised, there are still issues that need to be considered, on an ongoing basis. As well as the additional costs of owning a property such as council tax, water, repairs and maintenance, there are additional issues of which right to buy candidates should be aware, such as the repayment of the discount, if the property is resold within a set period of time.

How Long after Purchase does the Repayment Period Last
Anyone who exercised their right to buy before 18 January 2005, has a discount repayment period that lasts 3 years. If the right to buy has been exercised on or after 18 January 2005, then the discount repayment period lasts for 5 years.

Right to Buy Repayments
For those who purchased their property before 18 January 2005, the period in which a repayment of discount would be initiated if the property were to be sold is 3 years. During this time, the amount of the discount that has to be repaid will be reduced, as time goes on. If the property is sold within the first year of the right to buy being exercised, then the entire amount of the discount will have to be repaid. If it is sold in the second year, then two thirds of the discount amount is repayable. If it is sold in the third year, then a third of the discount payment will have to be repaid.

For anyone who has exercised their right to buy, on or after 18 January 2005, if the property is sold within 5 years, at least some of the discount will have to be repaid. If the property is sold in the first year, then the entire amount of the discount is repayable, in the second year four fifths will be repayable, in the third year three fifths will be repayable, in the fourth year two fifths will be due and in the fifth year one fifth of the discount will have to be paid back, if the property is sold.

There is an added catch, in that the discount percentage will apply to the resale value and not the amount at which the property was originally valued. For example, if the property was purchased for 200,000 with a 20 percent discount and the property was sold in the first year for 300,000 then the total discount percentage of 20 percent is due, which in this case would be 60,000 (20 percent of 300,000).

Summary
Bullet Point If a property is acquired through right to buy and then resold within either 3 or 5 years (depending on the date when the property was acquired), then some or all of the discount will have to be repaid
Bullet Point the amount of the discount that has to be repaid will be in relation to the new sale price and NOT to the original discounted price

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Typical Interest Payments

First Time Buyers

2.89%

Purchased Fixed

2.89%

Discounted Rate

2.99%

Buy To Let

2.99%

Commercial

3%

 

 

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