Buying a house is a big step and it's important to consider all of the advantages and disadvantages before making a decision. It can also be a great investment and allows you more flexibility, but with renting there's the option of housing benefit if you fall on hard times, and a maintenance programme.
If you are considering buying a council house, visit Derby Homes' Right to Buy web page.
Since it began in 1980 the Right to Buy scheme has allowed thousands of Derby residents to take out a mortgage and own their homes, aided by the discount calculated at the time of sale.
This right to buy discount, or a portion of it, is repayable if you sell or otherwise transfer (except via an assent) within the applicable discount period.
The discount period for applications made after 18th January 2005 is five years. The amount of the discount which is repayable is reduced by one fifth (20%) for each complete year that passes, however rather than being a set sum, the amount to repay increases proportionately to the percentage increase in the value of the property at the time of the sale compared to when it was purchased.
For example, if your property was valued at £100,000 at the time you purchased it, and you received a £10,000 discount (10%) then after one complete year you sold the property for £110,000, the total discount due for repayment is £11,000 (10% of the new value of the property).
This is reduced by one fifth as a complete year has passed since the purchase meaning the actual amount due to the council would be £8,800. If two complete years had passed it would be reduced by a further fifth, to £6,600 and so on.
The idea is to ensure that you and the council (and so ultimately the taxpayer), receive some of the profit.
The solicitor handling your sale will contact us and arrange for funds to be transferred on completion. Certain sales or transfers are exempt from the requirement to repay discount, for example transfers between certain family members.
In addition, if you would face hardship by having to repay discount, and your circumstances justify it, we can decide not to ask you to pay some or all of what you owe.
If in advance of your purchase, or within the discount repayment period, you enter into an agreement to transfer your property to a third party in the future, then this will trigger repayment of your discount. Discount repayment is triggered from the date that you enter into the agreement. So, for example, if you enter into such an agreement before you have bought the property or during the first year after buying, you will have to repay the full amount of discount you received.
If you go to a financial adviser or consultant to arrange your mortgage, they may encourage you to borrow more than the purchase price of the property in order to cover other things. These may include:
However, you may be surprised to know that Derby City Council has a say in how much you can or cannot borrow for up to five years after you have bought your home and what that borrowing can cover.
Why Derby City Council gets involved
We have a legal interest in your property, regardless of whether it is a house/flat or maisonette, for up to five years after you have bought your home. This is because we will have given you a discount off the open market valuation of the property under Right to Buy rules and, if the property is sold before the end of the five-year discount period, then all or part of the discount must be repaid and possibly part of any increased sale value.
This legal interest is known as a ‘charge’, and it means that if you default on your mortgage payments and your lender has to re-posses your home, Derby City Council will be repaid the discount before your lender recovers the value of the mortgage.
How this affects your borrowing
If you want to borrow more than the purchase price of your property your lender will probably ask us to agree to what is known as a ‘postponement of charge’. This postponement means that, if your home was repossessed, your lender would recoup all of the money borrowed from them, before the discount was repaid to Derby City Council. Mortgage lenders require this in case the sale price of your home is insufficient to cover the repayment of the discount as well as the loan.
When would we agree to a ‘postponement’?
The Housing Act 1985 sets out two situations where we must agree to postpone our charge, these are:
There are no other situations where we would agree to postpone our charge.
What should you do if you want to make home improvements and your lender wants Derby City Council to postpone its charge?
We will only postpone our charge if your mortgage lender (your bank/building society) formally asks us to. They must put their request in writing to us, detailing what the additional loan is for.
You must also provide us with copies of the quotes and/or estimates you have received for the improvements you propose. We will only agree to a postponement to cover the exact amount of the quotes which you send in.
Does it matter whether a postponement is issued before or after completion?
No, but the process is slightly different.
Before you purchase it is sufficient for our solicitors to issue a formal ‘Letter of Postponement’ to your lender, signed by one of our approved signatories. This then goes to the Land Registry when you are registered as the new owner. After completion we must issue a ‘Deed of Postponement’.