Right to Buy
Buying a house is a big step and it's important to consider all of the advantages and disadvantages before making a decision.
Buying your council house can be a great investment and allows you more flexibility. However, with renting there's the option of housing benefit if you fall on hard times, and a maintenance programme.
If you are considering buying your council house, visit Derby Homes' Right to Buy web pageOpens in new tab.
Information if you have already purchased your council house
Repayment of Discount
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.
What is a Deed of Postponement?
A Deed of Postponement (DoP) is a legal document that changes the priority of charges on a property. In a Right to Buy (RTB) scenario, it allows a homeowner to remortgage or take out a new loan and have that new loan secured as the first charge on the property, even if they are still within the RTB discount repayment period.
Why is it needed?
- Remortgaging - If a homeowner wants to remortgage their property, the new or existing lender will typically require a first charge on the property.
- Additional borrowing - If a homeowner wants to take out a secured loan for home improvements, the new/existing lender will likely require a first charge.
- Protecting the Council’s interest - Whilst to DoP prioritises the new lender, it doesn’t negate the council’s right to recoup the RTB discount. The council’s charge is simply postponed, meaning it moved to the lower priority.
How does it work?
- Request - The homeowner (or their solicitor) makes a formal request to the council for a Deed of Postponement.
- Evidence - The homeowner provides evidence to the council in the way of a remortgage offer, a redemption statement (how much is currently left on the existing mortgage) and / or quotes for home improvements or planning permission, to demonstrate the purpose of additional borrowing.
- Council’s decision - The Council reviews the request and evidence and, if approved, prepares the Deed of Postponement.
- Legal process - The Deed of Postponement is signed by all parties (the homeowner, the new or existing lender and the council) and registered with the Land Registry.
Key considerations
- Council’s approval - The council has the right to refuse a DoP if the proposed borrowing doesn’t meet their criteria (for example, if the purpose if not for improvements works or if the borrowing is deemed too risky).
- Discount repayment - The council’s charge for the RTB discount is still in place and the homeowner will still need to repay a percentage of the discount if they sell the property within the discount period.
- Legal advice - Its crucial for the homeowners to seek independent legal advice before proceeding with a Deed of Postponement.
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.
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.
The Housing Act 1985 sets out two situations where we must agree to postpone our charge, these are:
- to enable the borrower to pay our service charges
- to enable the borrower to make home improvements.
There are no other situations where we would agree to postpone our 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.
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’.