Right to Buy
The Right to Buy scheme is a policy in the United Kingdom (with the exception of Scotland since 1 August 2016 and Wales from 26 Jan 2019) which gives secure tenants of councils and some housing associations the legal right to buy, at a large discount, the council house they are living in. There is also a Right to Acquire for assured tenants of housing association homes built with public subsidy after 1997, at a smaller discount. About 1,500,000 homes in the UK have been sold in this manner since the introduction of the scheme in 1980, with the scheme being cited as one of the major factors in the drastic reduction in the amount of social housing in the UK, falling from nearly 6.5 million units in 1979 to roughly 2 million units in 2017, while also being credited as the main driver of the 15% rise in home ownership, which rose from 55% of householders in 1979 to a peak of 71% in 2003 (though this figure has declined since the late 2000s to 63% in England specifically in 2017).
Supporters claim that the programme has given millions of households a tangible asset, secured their families' finances and—by releasing cash to repay local authority debt—helped improve the public finances. Critics claim that the policy compounded a housing shortage for people of low income, initiated a national house price bubble, and led ultimately to what is commonly recognised as the displacement and gentrification of traditional communities.
Individual local authorities have always had the ability to sell council houses to their tenants, but until the early 1970s such sales were extremely rare.
The Labour Party initially proposed the idea of the right of tenants to own the house they live in, in their manifesto for the 1959 general election which they subsequently lost. Later, the Conservative-controlled Greater London Council (GLC) of the late 1960s was persuaded by Horace Cutler, its Chairman of Housing, to create a general sales scheme. Cutler disagreed with the concept of local authorities as providers of housing, and supported a free-market approach. GLC housing sales were not allowed during the Labour administration of the mid-1970s, but picked up again once Cutler became Leader in 1977. They proved extremely popular. Cutler was close to Margaret Thatcher (MP for Finchley) who made the right to buy council housing a Conservative Party policy nationally. The policy was largely in place for the 1974 Conservative manifesto, but did not prove an asset in the two general elections that year because of high interest and mortgage repayment rates, as well as the growth of negative equity as house prices fell.
In the meantime, council house sales to tenants began to increase. Some 7,000 were sold to their tenants during 1970; this soared to more than 45,000 in 1972.
After Margaret Thatcher became Prime Minister in May 1979, the legislation to implement the Right to Buy was passed in the Housing Act 1980. Michael Heseltine, in his role as Secretary of State for the Environment, was in charge of implementing the legislation. Some 6,000,000 people were affected; about one in three actually purchased their housing unit. Heseltine noted that "no single piece of legislation has enabled the transfer of so much capital wealth from the state to the people". He said the right to buy had two main objectives: to give people what they wanted, and to reverse the trend of ever-increasing dominance of the state over the life of the individual.
He said: "There is in this country a deeply ingrained desire for home ownership. The Government believe that this spirit should be fostered. It reflects the wishes of the people, ensures the wide spread of wealth through society, encourages a personal desire to improve and modernise one's own home, enables parents to accrue wealth for their children and stimulates the attitudes of independence and self-reliance that are the bedrock of a free society."
The sale price of a council house was based on its market valuation but also included a discount of between 33% and 50% (up to 70% for council flats), to reflect the rents paid by tenants and also to encourage take-up. According to a government survey in 1988, the average discount that had been offered was 44%. Mortgages involved no downpayments. The legislation gave council tenants the right to buy their council house at a discounted value, depending on how long they had been living in the house, with the proviso that if they sold their house before a minimum period had expired they would have to pay back a proportion of the discount. The sales were an attractive deal for tenants; hundreds of thousands of homes were sold. The policy became one of the major points of Thatcherism.
The policy proved immediately popular. Some local Labour-controlled councils were opposed, but the legislation prevented them from blocking purchases, and gave them half the proceeds. Sales were much higher in the south and east of England than in inner London and northern England. Sales were restricted to general-needs housing; adapted properties and those built specifically for older people were exempted from the scheme.
Half the proceeds of the sales were paid to the local authorities, but the government restricted authorities' use of most of the money to reducing their debt until it was cleared, rather than spending it on building more homes. The effect was to reduce the council housing stock, especially in areas where property prices were high, such as London and the south-east of England.
200,000 council houses were sold to their tenants in 1982. By 1987, more than 1,000,000 council houses in the UK had been sold to their tenants, although the number of council houses purchased by tenants declined during the 1990s.
The Labour Party was initially against the sales, and pledged to oppose them at the 1983 general election, but then dropped its official opposition to the scheme in 1985. However, at the 1987 general election, the Conservative government warned voters that a Labour government would still abolish the scheme.
When Labour returned to power at the 1997 general election, it reduced the discount available to tenants in local authorities which had severe pressure on their housing stock; this included almost the whole of London.
Right to Buy rules after 2005Edit
The Right to Buy rules were changed in 2005. Five years' tenancy was now required for new tenants to qualify, and properties purchased after January 2005 could no longer immediately be placed on the open market should the owner decide to sell. Such owners now had to approach their previous landlord (council or housing association) and offer them "first right of refusal". If the previous landlord was no longer in existence, for example in cases where the former landlord was a registered social landlord that has ceased business, then the property had to first be offered to the local housing authority.
The time in which a Right to Buy conveyance should take place was reduced from 12 months to 3 months. The Financial Conduct Authority (FCA) now governed and regulated most types of mortgage-selling.
The FCA's governance of Right to Buy purchases was partly to solve the widespread problem of Right to Buy mis-selling from brokers and solicitors alike. Each had their own agenda and many were charging excessive fees which were then taken out of their client's discount. The above actions that have been taken coupled with the end of the boom period seem to have brought this problem under control.
In 2009, the Localis think tank suggested, as part of a review of principles for social housing reform, that the right to buy should be extended into equity slivers, which could be part-earned through being a good tenant.
The qualifying period changed from 5 years to 3 years in 2018.
At the 2011 Conservative Party Conference, David Cameron proposed to increase Right to Buy discounts in order to revitalise the housing market and generate receipts which could be spent on new housing. Social housing professionals expressed concerns over the proposal.
As of 2 April 2012, the Right to Buy discount was increased to a maximum of £75,000 or 60% of the house value (70% for a flat) depending on which is lower. In March 2013, the maximum discount in London was increased to £100,000.
The maximum amount of discount changes annually wef April 2017 it changed to £78,600.00 (edited 2018 rbc dd3117)
The maximum right to buy discount increases each financial year in line with CPI as at the previous September (see separate document from the Right to Buy Team, Ministry of Housing, Communities and Local Government.
As the CPI in September 2017 was 3% the new maximum discounts for Redditch in respect of the financial year 2018/19 will be £80,900 and applies to all applications made by the tenant on or after 6 April 2018. Any applications made before then are processed using the current discounts (£78,600). In summary discount is a maximum of £80,900.00 from April 2018 (rbcdd3117)
The aim of the scheme is, for every additional home sold, a new home will be built for 'affordable rent' at up to 80% of market rent, aimed at maintaining the level of affordable housing while also increasing the number of properties available for those on the waiting list. The five year tenancy criterion will remain, and should the property be sold within the first five years of the original sale, part or all of the discount will be required to be paid back.
In July 2013, the Scottish Government confirmed that Right to Buy would be abolished in Scotland from 2017. It was in the end abolished as a part of the Housing (Scotland) Act 2014 from 1 August 2016.
In the summer of 2017, the Welsh Government proposed a law to abolish Right to Buy in Wales. This law was passed by the Welsh Assembly in December 2017, and the scheme will effectively end on 26 January 2019.
The Right to Buy scheme has been criticised for the following reasons:
- Speculating investors were able to buy up council properties through deferred transaction agreements, hastening the rise in property costs;
- Commercially and socially valuable council assets being sold at below their market value or replacement cost;
- The remaining stock of council housing was concentrated in undesirable areas with little employment opportunity, further isolating and stigmatising the tenants.
A report published in January 2013 by London Assembly member Tom Copley, From Right to Buy to Buy to Let, showed that 36% of homes sold under Right to Buy in London (52,000 homes) were being rented by councils from private landlords, leading to criticisms that the scheme "represents incredibly poor value for money to taxpayers" since it "helped to fuel the increase in the housing benefit bill, heaped more pressure on local authority waiting lists and led to more Londoners being forced into the under-regulated private rented sector". A survey in 2013 showed around one third of Right to Buy houses were now owned by private landlords, while the son of the late Ian Gow (Thatcher's sometime housing minister) owned some 40 houses.
In 2015, Alan Murie concluded that "the proposed extension of right-to-buy could not easily be reconciled with the independence and charitable status of housing associations", and that "extending the right-to-buy to housing association tenants revived a previous Parliamentary debate and raised questions about the legal position of charities and the risks faced by housing associations and their funders".
A 2017 BBC survey of council areas where waiting lists were rising showed the councils had bought back houses they had been forced to sell, sometimes at many times the original price. Housing charities criticised the lack of investment in affordable housing.
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