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In this article we’ll look at how exactly the Right to Buy scheme works, how to apply for a Right to Buy mortgage, and how bad credit issues can affect your eligibility.
Right to Buy is a government scheme, introduced in 1980 as a way to make homeownership more accessible for people living in council housing. The scheme works by offering tenants a significant discount on their homes - up to 70% of their value - making them a lot more affordable. In June 2022 the government extended the scheme to include housing association tenants, opening it up to even more people.
The discount you can get on your home depends on:
Let’s be clear - at this stage we are talking about your eligibility for the Right to Buy scheme, not your eligibility for a mortgage. You could find that you qualify to apply for Right to Buy but still can’t get a Right to Buy mortgage, but being eligible for the scheme is the first step.
To be able to buy you home under the Right to Buy scheme you must live in England, and meet the following criteria:
You can buy your house through Right to Buy on your own, or with someone else. This can either be:
The Right to Buy scheme in Northern Ireland is no longer open for applications.
Yes, it can. There are some specific legal and financial issues that preclude you from using the Right to Buy scheme. If any of these apply, you will not be able to buy your home through Right to Buy:
Remember, this step is still separate from your Right to Buy mortgage. Even if your bad credit issues don’t count you out of the scheme, they could still prevent you from getting a mortgage.
Once you’ve made sure you are eligible for Right to Buy and have gone through the application process and had your discount calculated, you will need to organise the funds to make the purchase. Unless you are a cash buyer, this will usually be done through a Right to Buy mortgage.
The term Right to Buy mortgage can be a little misleading, as technically there isn’t a specific mortgage product that is just for people buying through Right to Buy. You’ll be able to apply for any standard residential mortgage and you’ll be subject to the same eligibility and affordability checks as anyone buying a home through a more traditional route. This will include income and credit checks.
Lenders will almost always want to check your credit history as part of your mortgage application and they will do this by accessing information through one or more credit reference agencies. They don’t assess your credit based on the simple score that you will see if you check your own credit reports - they will look instead in detail at all of the information stored in your credit file and assess this against their own criteria.
They will be looking specifically at:
Your credit report will only show the previous six years’ worth of financial information, so if you have had credit issues before this, they will no longer count against you.
While some high street banks and building societies may immediately decline a mortgage based on bad credit, there are others who will be prepared to look at your application on an individual basis. This can work in your favour if you have bad credit as it gives you the opportunity to explain how your credit issue occurred. If for example you had one particular period of time where you got behind on credit payments because of illness, but have since caught up and managed your finances well, a lender may be more inclined to look sympathetically on your application.
You can also add permanent notes to your credit reports, called Notes of Correction, which are then visible to anyone checking your report. This is done through the credit reference agencies, so contact them for more information, or check your credit report for details of how to add a note to a specific issue.
Yes definitely. We understand that debt can feel scary, but it’s always best to deal with bad credit head on, and having a clear picture of exactly where you stand is the first step to managing your finances responsibly. It’s also crucial to know what bad credit issues show on your reports before applying for a Right to Buy mortgage as this information will determine which lenders you approach.
Not every lender will use the same credit reference agencies, so the most sensible approach is to get a copy of your credit report from each of the main three in the UK - Equifax, Experian and TransUnion. You can either do this individually, or you can use a service like checkmyfile, which collates information from all three in one place.
No, a lot of people worry that by checking their file that they will inadvertently dent their own credit score, but this is not the case. Hard searches from other organisations, such as applications for credit cards or loans, can potentially have an impact on your score but checking your own credit report never does, so you can look as much as you like. In fact, it makes sense to check your own reports regularly so that you can monitor your progress and look out for errors or signs of any fraudulent activity.
If you’ve checked your credit reports and found credit issues that you’re worried are going to hold you back from getting a Right to Buy mortgage, the first thing to do is to see if there are any quick wins you can do to improve your credit score. Some of these may be instant, others might take a little while to have an effect but could be worth it.
In the first instance, work through your credit reports and check for the following:
Once you’ve looked at these bad credit basics, it’s a good idea to find a mortgage broker who specialises in bad credit mortgages. They will be able to look at your credit report, and your broader financial situation, and assess your options. If your bad credit is severe enough to mean that you can’t get a Right to Buy mortgage from a mainstream lender, they will have contacts with specialist lenders and can advise you on how to maximise your chances of success.
Yes, that’s one of the key benefits of Right to Buy. Normally when you buy a house you need to put down a deposit so that the lender isn’t having to give you the full amount of the market value. This gives them a safety margin should you default, and allows for the value of the property to go down and them to still be able to recoup their costs.
With Right to Buy, your discount can normally be taken in lieu of a deposit, as even if you get a 100% mortgage, it will only represent a percentage of the value of the property. This means that even if you have very little in the way of savings, you still have a way to get on the property ladder.
It’s worth noting that not all lenders will offer Right to Buy mortgages with no deposit, so make sure you discuss your circumstances with a specialist broker so that they can guide you to the right lender for you.
Don’t assume that a zero deposit mortgage is always the best option if you can do it - if you do have savings that you’re able to put towards a deposit, this may make you eligible for more favourable interest rates and if you have bad credit, it can help to increase your chances of having your mortgage application accepted.
Although having bad credit can potentially impact your ability to secure a Right to Buy mortgage, having a clear understanding of your situation and the right expert support can go a long way. Talk to a bad credit broker today and take the first steps to owning your own home.
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