If you’re a council tenant living in England, you may have considered buying your home through the Right to Buy scheme.

If you're worried that your bad credit history will prevent you from purchasing the property, the good news is that you may still be eligible, despite a low credit score. This guide will look at Right to Buy mortgages and what you need to know about them if you have bad credit.


What Is the Right to Buy Scheme?

The Right to Buy scheme was introduced in 1980 to help council tenants purchase their rented properties, including people with bad credit. It offers eligible housing association and council tenants in England the chance to buy their home with a discount of up 70% or to £110,500, or £82,800 for those living outside London. It doesn't matter how much the property is worth or how long you've lived there for you to qualify. To be eligible for the Right to Buy scheme, you must meet the following criteria:

  • The property you’re looking to purchase is your only residence
  • The property doesn't share facilities with other properties, for instance, a flat sharing a communal bathroom with other households in your building
  • You've had a public sector landlord for 3 years or over
  • You're not in legal conflict with creditors

What's the Difference Between Right to Buy and Right to Acquire?

Commercial Mortgages

Right to Buy and Right to Acquire are similar schemes, but Right to Acquire is aimed at housing association tenants, while Right to Buy is for council tenants. If you were a council property tenant when your home moved to housing association ownership, you'd be required to use the Right to Buy scheme.

Under the Right to Acquire scheme, the discount you'll receive depends on where you live but is up to a maximum of £16,000. If you sell the property within 5 years of buying it under the scheme, you'll have to repay some or all of the discount. If you sell the home within 10 years, you'll need to offer the property to your previous landlord or another local authority landlord.


How Can I Get a Right to Buy Mortgage?

To access the Right to Buy mortgage scheme, you must complete an RTB1 form and send it to your landlord. They must respond in 4 weeks with an RTB2 form informing you of their decision. If they don't want to sell, they must explain why. If the landlord does agree to sell the property to you, they must send an offer to you in the form of a Section 125 notice within 8 weeks if it's a freehold property and 12 weeks if it's a leasehold property. The offer from your landlord must include the selling price and the discount, accompanied by a property description, details of any known problems with it and estimates of any charges. You must respond to your landlord within 12 weeks and either accept their offer or request an independent valuation if you disagree with their terms.

Once the council that owns the property confirms the terms of the Right to Buy, you can apply to a bank or building society for a mortgage. Most mainstream and high street lenders will accept the discount as a deposit, but you'll still be required to comply with the rest of their lending conditions regarding credit checks and income.

If you have bad credit, this is when you may have to consider approaching a specialist mortgage lender who offers bad credit mortgages. Our specialist mortgage advisers at John Charcol can help you identify the best lenders to approach in your circumstances and advise you on completing your mortgage application.


Can I Buy My Council House if I Have Bad Credit?

You can get a Right to Buy mortgage to buy your council house with bad credit but you may find your options limited. This is because – depending on how bad your credit is – you’d have to find adverse credit mortgage lender that also offers Right to Buy.

Bad credit refers to a low credit score resulting from previous credit issues such as missing or late credit cards and mortgage or utility bill payments. Once your public sector landlord has agreed to sell your council home to you, applying for a Right to Buy mortgage is much the same as applying for a standard mortgage to buy a property on the open market.

Lenders will look at your credit history when you apply for a Right to Buy mortgage. They'll consider things like late or missed payments, defaults and CCJs (county court judgements), etc. Lenders will also want to know what caused your credit issues, how long ago the issues occurred and how much money was involved.

What Types of Bad Credit May Affect My Ability to Get a Right to Buy Mortgage?

Any bad credit will limit your mortgage options but how lenders approach this will vary from one to the other. Most high street and mainstream lenders are highly risk-averse and may decline your application even if you've had only one relatively minor credit issues on your report during the last 6 years. Issues such as IVAs, CCJs, default notices and a few late or missing credit card payments tend to be more serious and require that you use an adverse credit lender who will charge higher rates and may require a bigger deposit. This can mean you’ll be limited to an extremely small pool of lenders who offer Right to Buy and are willing to consider people with bad credit.

Generally, when assessing a mortgage application with bad credit, lenders will look at the severity of the bad credit, how long ago it occurred, how much money it involved and how your borrowing and repaying has improved since then. Some specialist adverse credit mortgage lenders take a more flexible approach to credit reports and credit scores and will consider applicants who have experienced more severe adverse credit issues in recent years.

The different types of bad credit will affect your mortgage application differently.

Poor Credit Rating

A low credit rating can be caused by not having a comprehensive borrowing history. You can build up your credit rating by registering on the electoral roll, setting up direct debits for bills, regularly paying off any credit cards and more.

Late or Missed Payments

Missing or falling behind with your repayments is a major cause for concern to lenders. They will see this as a sign that you aren't responsible with your money management and may pose a high lending risk. Whether they will consider you and the terms they’ll offer will largely depend on the details of the missed or late payments, the amount of money involved and frequency.

Arrears

If you've recently fallen into arrears with your mortgage, it's highly unlikely a potential lender will want to give you a new one. If the arrears occurred over 3 years ago, you’ll have access to some adverse credit mortgage lenders that may be able to consider your application.

CCJs and Defaults

CCJs and defaults are serious types of bad credit and some lenders will automatically decline your application when they see these. Other lenders, especially those in the specialist market, will consider the size and circumstances and may be willing to consider your application. If these events took place within the last 12 months, it will be harder to have your application approved.

IVAs and DMPs

IVAs (individual voluntary arrangments) and DMPs (debt management plans) are serious forms of bad credit. Still, they show potential lenders that you've taken responsibility for your debt and entered into an arrangement to settle them. If either of these events occurred at least 3 or more years ago, most lenders would be willing consider your application. However, if you're currently in an IVA or DMP or have only just been released from one, you'll likely only be able to apply for a mortgage through a specialist lender.

Repossessions

Most lenders will not consider approving your Right to Buy mortgage application if you've had a property repossessed. Some specialist mortgage lenders may consider you, depending on the rest of your circumstances and when the repossession occurred. If it happened within the last 12 months, you’ll struggle to find a suitable lender. But, if it occurred over 3 years ago, you'll may have access to more options - even more so if it's been over 5 or 6 years.

Bankruptcy

Most mainstream lenders will likely reject your mortgage application immediately if there's a bankruptcy record on your credit report. Fortunately, specialist lenders are more flexible regarding bankruptcy and will consider your application after 12 months. Most specialist lenders will be happy to consider your application if it's been between 3 and 6 years since you were discharged.

The lenders that will consider your Right to Buy Mortgage application with bad credit will typically depend on the type of bad credit issues you have. However, the impact of your bad credit for a Right to Buy mortgage will reduce over time, especially if you maintain a good credit record.

How Much Deposit Do I Need for a Right to Buy Mortgage if I Have Bad Credit?

While it will depend on the type and severity of your bad credit issues, you may not need to put down any of your own money as a deposit. With a Right to Buy mortgage, the discount you get as part of the scheme means you're effectively getting equity against the property's market value. If you can add a deposit to the discount, it will help with reducing the amount you need to borrow and help you get a better rate.

It's worth noting that some lenders will require you to put down some of your own money upfront — usually around 5% to 10% of the property's value — regardless of the discount.


How Much Can I Borrow for a Right to Buy Mortgage?

How much you can borrow for a Right to Buy mortgage typically depends on your income and affordability. Your mortgage broker will be able to confirm your maximum borrowing after learning about your financial situation. Alternatively try our how much can I borrow calculator for an estimate.


Why Should I Use a Mortgage Broker with a Right to Buy Mortgage?

Obtaining a Right to Buy mortgage is a little more complex than obtaining a standard one, especially if you have a bad credit history and may have to make more than one application.

You may find that your options are limited and it’s hard to find a competitive Right to Buy deal. This is where John Charcol can help. Our advisers can support you through the process and steer you in the right direction towards a suitable lender with criteria that aligns with your situation. We even have access to adverse credit lenders that don’t work directly with the public, meaning we can find the very best deal on the market for your circumstances – no matter how niche your requirements.


Summary: Right to Buy Mortgages with Bad Credit

Securing a Right to Buy mortgage with bad credit can be extremely challenging, especially if you try going it alone. The best way of getting a Right to Buy mortgage with bad credit is by working with a specialist mortgage broker such as John Charcol.

We are a whole market broker that works with a wide range of Right to Buy mortgage lenders. Using our extensive knowledge and experience, we can help you find a Right to Buy mortgage at the best possible rate for your circumstances. Get in touch with us today on 0330 433 2927 to learn more about how we can help you.


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