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  • Home
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  • Right to buy extension to include Housing Association homes
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Right to buy extension to include Housing Association homes
July 5, 2022

The Prime Minister recently announced an extension to the Right to Buy scheme. It will give 2.5 million tenants currently renting their homes from Housing Associations (‘’HAs’’) the right to buy them outright.

While the plans are still in their infancy with the finer details yet to be provided, if implemented the policy will represent one of the biggest changes to the Right to Buy scheme since its original introduction by Margaret Thatcher’s Conservative government in the 1980s.

The current Right to Buy scheme and options for Housing Associations to buy their own property

Council tenants

The Right to Buy scheme currently in place mainly focuses on local authority tenants (i.e. council tenants).

In order for council tenants to become eligible for the Right to Buy they must:

  • be a secure tenant with the council;
  • for a minimum of three years in total; and
  • live in a self-contained property, which is their only or main home.

Eligible tenants who have been in occupation for longer than three years are offered a discount if they choose to buy their property, which is reflective of the period of occupation. 

If you’ve been a council tenant for between three and five years, the discount is 50% for flats and 35% for houses. This discount increases 2% a year thereafter for flats and 1% for houses with a cap of 70% of the home’s market value, up to a maximum of £87,000 across England, or £116,200 for homes in London.

Housing Association tenants

Housing Association (HA) tenants have limited rights to buy their own property.

The above Right to Buy scheme applies to HA tenants who were previously secure tenants of the council at the time their property was transferred to a HA (i.e. the ‘Preserved Right to Buy’).

However, where this does not apply the only other route for HA tenants to purchase their home is through the Right to Acquire scheme.

To be eligible for this scheme HA tenants must:

  • be an assured, specified assured short-hold or secure tenant with a HA landlord;
  • for at least 2 years prior to 18 January 2005 or 3 years from this date;
  • live in a self-contained property which is their only or main home; and
  • live in a property that was built or bought by a HA (and funded through a social housing grant provided by the Housing Corporation or local council) or transferred from a local council to a HA, after 31 March 1997.

Even where all these requirements are met, the discounts available are limited to £9,000-£16,000 depending on where the property is located.

The new policy

The Prime Minister has said he wants to extend the current Right to Buy scheme to include homes owned by HAs. He argued around £30 billion in housing benefit that currently goes towards rent could be better used to help people buy their homes, and by doing so people will be less dependent for every repair and instead become in charge of making improvements for their own home.

This will mean HA tenants across the country will eventually be able to buy their own home and benefit from the full discount provided by the Right to Buy scheme.

The Government has stated that it aims  to work closely with the HA sector on the design of the scheme and pledged to make funding available to ensure that HA homes sold under the extended Right to Buy scheme are replaced with new supply on a one-for-one basis.

Impact on Housing Associations

HAs are independent, largely charitable organisations established with their overriding purpose to provide affordable homes for those on low incomes.

Their main concern therefore is that the policy may lead to a reduction in their housing stock.

Proposals for HA tenants to be able to buy their social homes at a discount are not new. An earlier, voluntary scheme was piloted in 2018.

To look at a specific example, the West Midlands pilot found while 1,892 tenants bought their property, the one-for-one replacement had been “challenging” for HAs. This was because the average price of the homes sold was half that of average new-build price of £280,000 in the region.

Practical considerations going forward

  • Eligibility

HAs should keep up to date with the latest proposals as to applicant eligibility. Under the Preserved Right to Buy scheme, HAs have a duty to ensure that they provide information to tenants on whether to exercise their right to buy. Similar requirements may be imposed for the new scheme.

  • Application fees

Under the current Preserved Right to Buy scheme, the tenant and HA must cover their own costs.

However, HAs under the 2018 pilot were permitted to charge application fees to tenants at around £250.00 per application. If this applies to the extended Right to Buy, this may ease the burden of increased applications.

  • Conveyance provisions

The model sale contract for the 2018 pilot included an optional overage clause requiring buyers to pay the HA for any developmental uplift in value in the first 25 years of ownership.

Overage clauses were previously ruled unlawful when used for the current Right to Buy scheme and as a result, the provisions in the 2018 pilot led to difficulty for some tenants in gaining a mortgage and were subsequently dropped by some HAs.

HAs will therefore need to be conscious of whether overage provisions are included in the extended Right to Buy scheme model contracts, due to the potential legal and practical issues they may cause.

Conclusion

Overall, the exact impact of the extension of the Right to Buy to HAs will not be known until the details of the policy are set out in full. This is especially true in relation to funding to support HAs to replace their stock. 

HAs must be mindful of the further details of the policy as they are given, to ensure compliance with its terms and to prepare for any financial pressure it may cause.

For more information, please contact Birketts’ Specialist Social Housing Team.

Jonathan Hulley

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Sectors
  • Social Housing

The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at July 2022.

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