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The new right-to-buy and ‘benefits to bricks’ schemes: what you need to know

You’re certainly not alone if you’re having trouble getting your foot on the property ladder.

In light of the continuing housing price increase, buying a first home is becoming tougher with every passing year, especially for those on lower incomes. There are, however, a number of government proposals that aim to make homeownership more accessible to millions of people.

Boris Johnson launched several eye-catching housing market reforms as part of his mortgage review on Thursday 9 June, aimed at removing some of the barriers you may face as a prospective homeowner.

The finer details are expected to be revealed later this autumn, but here we provide an overview of the new measures, explain whether you might qualify, and assess the market outlook for budding first-time buyers.

How do the reforms work and who will benefit from them?

Basically, the reforms aim to assist those who are most in need of financial assistance.

We’ll go into more detail on the right-to-buy scheme shortly, but among the proposals is an extension to housing association tenants so that 2.5 million homes can be purchased by those living there now. As part of the government’s pledge to ensure that the housing supply is maintained, a new social home will be built for every home sold.

Moreover, the prime minister announced plans to simplify mortgage approval rules to make it easier to qualify for a mortgage. Benefits for bricks means that 1.5 million low-paid workers who claim housing benefit can count their welfare payments as income when applying for a mortgage. By doing this, more of you can meet the criteria for mortgage affordability.

Those currently receiving Universal Credit will also be pleased with the news. Currently, the amount of credit you can claim starts to decrease once savings exceed £6,000 and stops altogether once savings reach £16,000. The government, however, plans to exempt Lifetime ISA savings from these rules to encourage people to save – meaning you can save for a home without affecting your eligibility for Universal Credit. Keep reading to learn more about how a Lifetime ISA can help you achieve your homeownership goals.

Who is eligible to buy and what is the right to buy?

As part of the Right to Buy scheme, launched by Margaret Thatcher in 1980, council tenants have the opportunity to purchase the home that they live in at a discounted price. In the period 1980-2020, just under 2 million homeowners benefited from the program.

There are certain criteria that must be met in order to qualify for right to buy.

Here are some examples: 

  • You live in it as your only or primary residence
  • There is a self-contained unit
  • As a tenant, you have a sense of security
  • Three years have passed since you had a public sector landlord. It’s not necessary for them to be consecutive.

Right to buy is only available to a small number of people, but the discounts it offers are very appealing to those who qualify.

There are different discounts based on whether you live in a house or a flat, with the latter offering a greater discount.

Public sector tenants who have lived in a flat for between three and five years can receive a 50% discount, while those living in a house can receive a 35% discount. In addition, the discount increases 2% each year with a cap of 70% of your home’s market value, up to a maximum of £87,000, or £116,200 in London.

You are also eligible for the scheme if you live in an ex-council house. This is called the preserved right to buy.

Homeowners in England only need to apply for these. There are different rules for those of you living in Northern Ireland, Scotland, and Wales.

Prospects for first-time homebuyers

It is understandable that even those who do not need to claim state or housing benefits may still find it difficult to purchase your first home.

In the past year, Halifax has compiled data that shows the average UK house price has increased 10.5% to just shy of £290,000.

To build up an initial deposit, aspiring homeowners have to work harder and save longer, a fact underscored by the fact that only 31% of millennials own their own homes.

However, there are many reasons to be optimistic despite what may seem like a bleak future. Achieving much-cherished homeownership is well within reach with a bit of prudent financial planning.

In addition to the Lifetime ISA, there are other government initiatives that allow you to save a tax-free lump sum that can be used to save for a deposit on your first home, plus a government bonus of up to £1,000 per year.

This recent article provides more information on how a Lifetime Isa can help make homeownership a reality for you. To give lenders confidence that you will be able to repay any borrowings, you should also consider ways to improve your credit score. This is how you can go about it, and we have a handy guide that you can check out here.

What should I do if I need help?

If you are considering buying a council or housing association home or any home, we strongly urge you to consult a professional before making the decision.

Using the Unbiased mortgage calculator, you can find out how much you might be able to borrow, and we can connect you with a mortgage adviser who can recommend the best course of action based on your specific circumstances. You will have peace of mind knowing that your first mortgage payments will remain affordable for the foreseeable future.

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