Right to Buy
What is Right to Buy?
"Right to Buy" is a scheme under which longstanding local authority tenants are entitled to purchase their homes at a heavily discounted price.
To qualify for the scheme, an individual must be a tenant of at least two years' standing. This period need not be spent in the same property, or as a tenant of the same housing authority.
The scheme entitles eligible tenants to buy their home at a minimum discount of 32 per cent of the market value for a house or 44 per cent for a flat. Tenants of longer standing are eligible for an additional 1 per cent discount per additional year of occupancy for a house, up to a maximum of 60 per cent. The annual increment for flats is 2 per cent, up to a maximum of 70 per cent.
These discounts, however, are subject to a series of maximum levels, ranging from £38,000 in some parts of the South East of England to £16,000 in Wales and some parts of London.
"Right to Buy landlords" include not only local housing authorities, but also Registered Social Landlords registered with the Housing Corporation (secure tenants only), fire authorities, passenger transport executives, Government Departments, the NHS and a wide range of other public bodies.
Charities, housing co-operatives, the Housing Corporation and social landlords not in receipt of public funds are not subject to Right to Buy. A Right to Buy landlord may refuse to sell accommodation that is especially suitable for older people, although this is subject to a time-limited right of appeal.
If a property purchased under Right to Buy is resold within three years, some of the discount must be repaid to the former owner.
Right to Buy was introduced in the Housing Act 1980, as one of the first major reforms introduced by the Thatcher government.
The 1970s had seen some local authorities voluntarily sell parts of their housing stock, but the introduction of Right to Buy - forcing local authorities to sell their properties on request at a discount - was highly politically controversial. The Act precipitated a strike by NALGO members, who refused to process Right to Buy applications. However, in spite of the strike, 90,000 properties were sold in that year.
The policy was massively popular, and served a number of ideological purposes for the Conservatives. Spreading home ownership - at the time, regarded as a critical part of individuals' economic self-sufficiency - Right to Buy also diminished the responsibilities and size of local authorities. Around 55 per cent of properties were inhabited by owner-occupiers in 1979: by 2003, this figure was 70 per cent.
In 1982, Right to Buy sales hit an all-time peak of over 240,000, and in 1984 the available discounts were increased. In 1985, Labour abandoned its opposition to the policy. 1989 saw sales exceed 200,000 for the second time. Between 1979 and 1995, 2.1 million properties were transferred from the public sector under Right to Buy.
In 1993, the Conservative government introduced Rent to Mortgage: a scheme under which tenants unable to afford the full (discounted) price of their property could pay for just part of the home initially, sharing ownership with the local authority until the full price was paid.
When Labour came to power in 1997, the Right to Buy process looked to be slowing down. Labour applied the brakes by reducing the maximum discount from £50,000 to £38,000 in 1999. At the same time, it reduced the proportion of Capital Receipts from sales of council housing that local authorities were required to retain, releasing £3 billion.
In 2001, the Scottish Executive reduced the maximum discount in Scotland to just £15,000 and increased the minimum tenancy period to five years. In October that year, it was alleged that loopholes in the Right to Buy arrangements were being abused by property developers, which were bribing tenants to buy their homes and let them out at market rates. The announcement in July 2002 that restrictions on the right were under consideration by the Government led to a mass of new applications. In October that year, with many believing that the Government planned to end the Right to Buy, the Conservatives promised to retain it, and extend it in full to Housing Association tenants.
By 2002, many voices were warning that Right to Buy was exacerbating the incipient housing crisis in many areas. The policy was diminishing the stock of affordable housing, making it harder for many to get on to the housing ladder. In 2000-2001, 53,000 homes were transferred under Right to Buy, but only 18,000 new affordable homes were built.
In March 2003, Deputy Prime Minister John Prescott announced that the maximum discount was to be cut in 41 local authority areas in London and the South East.
The Government's Housing Act, which received Royal Assent in November 2004, included further changes to modernise, including the end of the little used Rent to Mortgage. Most of these changes came into force on 18 January 2005, but the scheme is still open to almost any secure tenant who can afford to buy, with only certain specified dwellings, e.g. police houses, being exempt.
Right to Buy was one of the Thatcher governments' most popular policies, and it had a profound social impact in dramatically increasing the rate of owner-occupancy. Even since 1995, annual sales under Right to Buy have been around 50,000.
The impact on local government has also been significant. At the start of the 1980s, local authorities were one of the biggest direct providers of housing: Right to Buy and other policies, such as the right for tenants to opt for management by an "approved landlord" rather than the council under the Housing Act 1988, were intended to transform them into "enablers". As a result, the significance of housing to local government is considerably diminished.
The policy was also seen to be expensive for councils, which were forced to sell their housing stock at below the market rate. Large-scale stock transfer, moreover, diminished council housing accounts (which are separate from other revenues and spending), hampering authorities' ability to carry out repairs and improvements.
Labour's pro-public sector instincts and its hostility to "Thatcherite" policies left it in what many described as a somewhat ambiguous position with regard to Right to Buy. Some sections continued to press for its abolition, but the Government remained unwilling to commit itself to abolition. The identified abuses of the scheme by property developers were invoked as justification for restrictions that many had expected to come earlier.
Nevertheless, the threat posed by property developers is genuine. There is said to be widespread evidence of developers encouraging paying council tenants to buy their homes - often without regard to their ability to afford the mortgage - in order to let their homes out at the market rate. As the buyer is liable to repay the discount if a property is resold within three years, some former tenants have found themselves homeless. More widely, the range of incentives offered to council tenants to buy in the 1980s and 1990s led to some people buying without regard for the loss of benefits they would incur and the responsibility they would have to take for maintaining their homes - occasionally with damaging results.
Opponents have also claimed that the Right to Buy Scheme has contributed to the decline in the stock of affordable housing. The UK has had a poor record in building new low cost housing since the 1960s, and combined with a booming property market, many not eligible for the Right to Buy have found themselves completely unable to do so. This has been particularly felt in London and the South East, where many vital public sector workers, such as teachers and police officers have found themselves priced out of the market.
In November 2011, a major new housing strategy was announced by the Prime Minister and Deputy Prime Minister, the aim of the strategy being to tackle the housing shortage, boost the economy, create jobs, and give people an opportunity to get on the housing ladder.
The new strategy included proposals to dramatically increase discounts under the Right to Buy scheme, with social tenants being allowed discounts of up to 50% of the value of their home, making home ownership more achievable.
The Government also announced that for the first time, the receipts from additional Right to Buy sales will be used to support the funding of new affordable homes for rent on a 'one for one' basis, which is expected to deliver up to 100,000 new homes and support 200,000 jobs.
38% of social tenants are well-off enough not to need Housing Benefit and over 800,000 tenants are in full-time work.
Nearly 60% of social housing tenants who are couples with children do not claim Housing Benefit.
Therefore many social tenants will be able to meet the cost of the mortgage after allowing for the discount.
Source: Department for Communities and Local Government - 2011
‘Whilst we welcome the government’s commitment to tackle our housing crisis, today’s announcement falls far short of the quarter of a million new homes we need each year just to meet demand......We are concerned that schemes to help first-time buyers and council tenants will simply encourage people to overextend themselves, while doing nothing to address the sky-high cost of housing."
Shelter chief executive Campbell Robb, responding to the Government's housing strategy announcement – November 2011