Right to buy council flat – is it a good idea?

by Readers Question

9:15 AM, 2nd December 2019
About 6 days ago

Right to buy council flat – is it a good idea?

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Right to buy council flat – is it a good idea?

I am in the process of obtaining a mortgage for my current council flat. I have a large tenant discount so only need a mortgage of £64k. The council valued the property at £170k, but I had an estate agent value the property at £200k.

The agent also mentioned that with home improvement other flats in the blocks have sold for up to £260k. Also because it is a sort after area (good schools, close to transport links, Greater London) demand for private rental in my block is very high.

Rental income could be £1300 per month. My issue is as it is a high rise concrete block Lenders have been hard to come by and I’m worried that it will be difficult to sell for this reason in the future. Should I take the risk and buy?

I’d appreciate advice from those that have done this before or have any experience in this area.

I feel like this will be the first step into property development and the start of a portfolio.

All advice is welcome.

Many thanks!

V



Comments

Neil Patterson

9:23 AM, 2nd December 2019
About 6 days ago

Hi V,

The idea of Right to buy is exactly to encourage home ownership rather than a straight forward give away.

Hence there will normally be a covenant that states you cannot sell, rent or possibly raise equity against the property for at least 3 years. Check this out first as a BTL lender will not touch it and a main residence mortgage will require that you do not intend to rent the property and will not give consent to let during the 3 year period or longer.

Lender criteria in general on ex-la blocks over 4 stories can be quite complex so you will need a broker to do a whole of market search or get incredibly lucky who you ask.

terry sullivan

11:39 AM, 2nd December 2019
About 6 days ago

lease details? ground rent?

any repairs needed? any sinking fund in existence?

councils can be b#st#rds as they hate rtb--many cases of extortionate costs of repairs/improvements--both labor and tory councils have form in this respect

david porter

12:05 PM, 2nd December 2019
About 6 days ago

Jeremy plans to borrow gazillions and then buy businesses that make losses. The only way to be able to repay such debt is to let inflation gallop.
Stand by to pay £10.00 for a loaf of bread.
Get out of money and get assets!!

Darren Peters

12:56 PM, 2nd December 2019
About 6 days ago

Do you like living there and would you be happy to live there for the foreseeable future? I.e. could you use it as your home and do your property business elsewhere? If you want to purchase and sell or purchase and rent immediately it probably won't work out.

If you want to live there, how does renting compare to the likely cost of services and mortgage? The council should provide 3 years of service charges accounts to give you an idea of that cost - which you won't have seen as a tenant. Costs for things like communal heating tend to be a lot higher than if you had a 'normal' property for some reason that I've never managed to get to the bottom of.

RTB has restrictions on you and also the council for several years after purchase. The possible restrictions on you are as Neil says above. Restrictions on the council will be to protect you from shock service charge increases or building works costs for 3 or 5 years (I can't remember which). So if the council needs to replace all the windows and put up 20 floors of scaffolding to do so, you _might_ be sheltered from the worst of the cost. But if they do it say in 6 years you will have to pay your full proportion.

From experience, service charge costs on high rises are expensive. Back in 2005 said window replacement works cost in excess of £20,000 per flat in a block where I bought. Lifts and communal heating are other elements that can have eye-wateringly expensive costs. It's not a case of if but when. Though some councils allow you to pay this off over 5 years.

For mortgages, it depends how much money is washing around the banks when you apply. If funds are tight, the following are used to restrict demand: Ex local authority, above 5 floors, communal balcony access, low proportion of owner occupiers in the block. Each of these reduces the lenders and products available. This is something to consider not just for purchase but if you want to sell later.

moneymanager

14:30 PM, 2nd December 2019
About 6 days ago

Reply to the comment left by david porter at 02/12/2019 - 12:05
"Weimar republic", buy saucepans, not as daft as some might think; as with the poor the debt is always with us.

techie

15:47 PM, 2nd December 2019
About 5 days ago

I bought my council flat from a London Borough council in 2009 under the right to buy scheme after living there for 9 years.
I faced the high rise concrete block issue when getting a mortgage but found Halifax was favourable and I was with them through the time I owned it. I also understand Satander and Nationwide which my neighbours had used would consider this as well. My first potential buyer had the same issue and the sale fell through but I eventually got an offer from a cash buyer so ended up not being an issue when selling
Back then in my borough (dont know if its changed) if you decide to sell, the council has first right of refusal. Also, if you sell in the 1st year you pay 4/5 of discount back, sell in the 2nd year - 3/5, 3rd year -2/5, 4th year- 1/5 and nothing in the 5th year.
I sold after 5 years which allowed me to buy somewhere bigger using the equity in the property.
Just remember you are responsible for all your repairs and are contractually bound to contributing to any major works and need to pay a Service Charge so you need to factor this in as it can be quite expensive. However, overall it was a very good decision to make the buildings are solid and it allowed me to get on the housing ladder with no deposit and because the council/HA tend to value lower than market you get instant equity.

Simon M

17:29 PM, 2nd December 2019
About 5 days ago

Hi V,

This may sound a silly question. If you're letting out your flat, where are you going to live? (Rent in the private sector will be more expensive, and as others have already said you'll have extra costs of service charges, repairs etc)?

V

17:52 PM, 2nd December 2019
About 5 days ago

Hello, thank you all for your advise and comments.

To answer some questions above I have been told if sold within 5 years I would have to pay a percentage of the discount back depending on which year we sell.

I have been given a breakdown of the works needed over the next 5 years there are no planned big jobs such as lifts. Windows, kitchens and bathrooms have all already been updated a few years ago. So there is no risk of huge service charges in the next 5 years.

As it’s a high rise the only lender willing to consider loaning has high rates but the monthly mortgage payments including services charges will be very close to what we are currently paying in rent so I am not worried about that.

I would be willing to live here for the next 5 years (I’ve already been here for 7). It’s a nice flat in a good area. I don’t have a problem with the property plus my husband has his own building and plumbing company (www.onefixinfo.co.uk) so all works would be covered easily. My main issue is the family is outgrowing our 2 bed (like many families).

I think I just have to take the risk that in 5 years we will be able to sell or rent.

Thanks again for the comments it has helped a lot. I’ll keep you posted on how it goes.

V

V

17:55 PM, 2nd December 2019
About 5 days ago

Reply to the comment left by Simon M at 02/12/2019 - 17:29
The idea would be to release equity and buy somewhere else and let the rental income pay towards all bills and charges. This is something other owners in the block have done.

V

18:09 PM, 2nd December 2019
About 5 days ago

I just double checked the paperwork and it works out with service charges and mortgage payments - we’ll be paying about £100-150 a month extra.

Also I have been told we will have the option of remortgaging to try and get a better rate within the 5 years.

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