1 THINKING OF BUYING YOUR COUNCIL HOME? Information to help tenants decide whether to exercise their Right to Buy Introduction When buying a council house or bungalow, you will purchase the freehold and own the property outright. When buying a flat, it is usual to purchase the leasehold. This allows you and your successors to live in the property for a fixed period, usually 125 years. The Council will still own the block in which your flat is situated and you will have to pay annual Ground Rent and Service Charges. Buying your home will probably be the biggest financial decision you will make. This leaflet endeavours to bring to your attention relevant information to consider before deciding whether or not to purchase your home. It is not a definitive statement and you are recommended to seek your own advice from appropriate professionals such as financial advisers, solicitors and surveyors. Remember, at the end of the day Only you can decide if buying your home is the right choice for you. What is the Right to Buy? Council tenants have a Right to Buy their home at a discount. The longer you have been a tenant, the bigger the discount. If you want to work out how much discount you are entitled to see the table on the following page. Who has the Right to Buy? You will probably have the Right to Buy if you have been a secure tenant of a Council dwelling for at least five years. Your tenancy does not have to have been held with Mid Suffolk District Council, or in your present dwelling, to qualify. Time spent as a tenant of another Council, Housing Association or with the Armed Forces may count towards your qualifying time. You may be able to exercise the Right to Buy jointly with members of your family who have lived with you for the past 12 months, or with someone who is a joint tenant with you. Exceptions to the Right to Buy You do not have the right to buy your property if: A Court makes a possession order against you, which says that you must leave your home. if you are an undischarged bankrupt, have a bankruptcy petition pending against you, or have made arrangements with creditors (people you owe money to) and you still owe money. If you hold an introductory tenancy although the introductory period counts towards any calculation of discount once the tenancy has become secure. If the Council intends to demolish your home an initial demolition notice may be served, valid for up to seven years. This will suspend the sale of any Right to Buy application
2 made prior to the serving of the notice. If the Council then serves a final demolition notice any existing Right to Buy applications are ended and no new applications can be made. Tenants would be kept fully informed if demolition was ever contemplated. A tenant s right to buy can be suspended or terminated if they (or their household or visitors) engage in anti-social behaviour. Sheltered Housing for the elderly, those with special physical and/or mental needs are excluded. The tenancies of employees who have to live in homes owned by their employers so that they can be near their work. Tenants granted tenancies under homeless legislation are excluded. In addition to sheltered housing being excluded, the Council may refuse to let you buy on the grounds that your home is particularly suitable for occupation by elderly people. This exclusion mainly affects people who live in one or two bedroom bungalows. What discount am I entitled to? The Right to Buy scheme gives tenants a discount on the market value of their home. The longer you have been a tenant, the more discount you get, up to a maximum of 75,000. In order to qualify for the Right to Buy, you must have been a public sector tenant for at least 5 years. If you live in a house you will receive an initial 35% of the property s value plus 1% for each year beyond the qualifying period up to a maximum of 60%. If you live in a flat you will receive an initial 50% of the property s value plus 2% for each year beyond the qualifying period up to a maximum of 70%. The table below gives an idea of the discount you could receive on a house worth 130,000 and a flat worth 80,000. (Please note these are examples only). Qualifying Period (Years) House valued 130,000 (increases by 1% per year, up to 60%) Flat valued 80,000 (increases by 2% each year, up to 70%) 5 35% 45,500 50% 40, % 52,000 60% 48, % 58,500 70% 56, % 65,000 70% 56, % 71,500 70% 56, % 75,000 70% 56,000 Over 30 60% 75,000 70% 56,000 How is the price worked out? Your home will be valued, disregarding any improvements you may have made to the property. The discount that you are entitled to is then deducted from the value of your home to produce the purchase price. If you have purchased a property through the Right to Buy scheme before, the amount of discount you received then, will be deducted from your discount when you buy again. If the Council has, in the past 10 years spent a substantial sum on the property, the discount cannot reduce the price below what has been spent on the building. Referred to as the cost floor
3 price. This may result in the discount being limited or even no discount being granted. This is rarely the case and mostly will affect properties if they are less than 10 years old when land acquisition and building costs will be included. THE COSTS OF HOME OWNERSHIP Home ownership brings many benefits but it also involves responsibility and risk. Before making a decision, we would like you to take time to consider the initial costs involved in buying your home and the on-going costs of being a homeowner before you send in your application. Initial Costs of Buying your Home There are many costs involved when buying your home these include:- Taking on a Mortgage - Unless you have the cash, you will need to arrange a loan or mortgage, usually from a building society, bank or other approved lender. Taking on a mortgage is a huge financial commitment both in terms of the amount you borrow, and the time you may take to repay it. There are various kinds of mortgage which a bank, building society or an independent adviser can tell you about. A free guide about the different types of mortgage is available from the Financial Services Authority, telephone or their website, You will have to repay the mortgage, plus interest, by instalments (usually monthly). Normally, mortgages have to be repaid over a period of 25 years. Remember that the value of homes can go down as well as up. You should feel comfortable with your commitment. It may be tempting to borrow as much as possible when the initial cost is manageable, but allow for increased costs in the future such as a rise in interest rates. If they go up, your mortgage repayments will increase. Please see table below, which gives examples of monthly mortgage payments, depending on the amount you borrow and the interest rate. These figures are based on a repayment mortgage and borrowing over a 25 year period. Please note this table is for illustrative purposes only and you need to apply to a mortgage lender to obtain a quote. Mortgage amount Interest Rate 5.25% 5.75% 6.25% 6.75% 50, , , You can afford your mortgage now, but what if. You may be able to afford the repayments now, but if you borrow a large amount over a long period of time think what could happen if, for example, your income falls or you lose your job. Or what if interest rates rise and your monthly repayments go up? Take time to consider all the costs involved and the choices of mortgages available. Ask your lender for advice on your ability to afford to buy your own home. Get independent information by
4 reading publications such as What Mortgage or Your Mortgage, or useful guides such as How to buy your home from the Council of Mortgage Lenders on Repossession There is a risk of your property being repossessed if you do not keep up with your mortgage payments. This could mean that you lose your home. You should consider taking out mortgage protection insurance to cover payments in the event of you losing your income through illness or unemployment. There are many providers of this insurance and you should seek quotes and liaise with your chosen lender of your options. Mortgage Related Insurance - You need to consider the following:- Life assurance. This may sound morbid, but it ensures that the mortgage will be repaid in the unfortunate event of your death. Your surviving family will not be left with the heavy burden of mortgage debt. Income protection insurance. You need to think seriously about how you would meet your mortgage repayments if you lost your income, say through unemployment or ill health. Valuation Fees - A report will be required by a Mortgage Company to confirm the value of the property and make sure it is suitable security for a mortgage. The fee for the valuation will normally be based on the purchase price of the property. (This will cost around ). Many mortgage companies also charge an administration fee for arranging the mortgage. They can vary substantially from company to company so you may wish to shop around. Land Registry Fees - When your purchase is completed, you must pay the Land Registry to register you as the new owner. This may be included in your solicitor s legal fees. You can get more information on this from Searches - There are various searches that you will need to have carried out on your home. Your solicitor will inform you which searches will need to be conducted. Again, this may be included in your solicitor s legal fees. Stamp Duty Land Tax - You may have to pay Stamp Duty Land Tax, which is a tax that people pay when they become homeowners. Stamp Duty Land Tax is worked out as a percentage of the price you pay for a property. You will only pay Stamp Duty Land Tax if the price you are actually paying for the property is more than 125,000. You will pay 1% of the purchase price for a sale between 125,001 and 250,000 as Stamp Duty Land Tax or 3% if the sale is in excess of 250,000. Legal Fees - You should employ a solicitor or a licensed conveyancer to look after the legal side of buying your home. Legal fees vary, depending on whom you instruct, it is always advisable to ask how much they will charge for doing your Legal work, before instructing anybody and it is advisable to obtain a few quotes from different solicitors. The best way to choose a solicitor or conveyancer who will give you a good service and value for money is to have one recommended by someone you know. If this is not possible, the Citizens Advice Bureau can advise on local firms, and your local public library should have a list of the solicitors in your area and the type of work they do.
5 Survey Fees - If you buy your home, you will take on responsibility for any outstanding repairs or structural problems. Before you decide to purchase your home you should consider asking for an independent survey from a qualified surveyor or structural engineer. There are three types of surveys that you can have:- Standard Mortgage Survey general basic check of the visible parts of your property. An RICS Home Buyers Survey and Valuation - This is a more detailed report than the standard mortgage survey. It provides a concise report detailing any significant problems that could make a difference to the value of the property. It is likely to cost around A Building Survey. This involves a detailed examination of all the visible parts of the property. It is a good idea to have such a survey done if the property is old, has a known structural defect or obviously in need of repair, or if you are considering making alterations. It may cost 600 or more. You can get more information about surveys from the RICS (Royal Institution of Chartered Surveyors) details in yellow pages or on the Internet at Your mortgage lender may be able to arrange to combine a structural report with the mortgage report therefore resulting in savings to the purchaser. Such a survey may run into hundreds of pounds but in the light of the value of the property it is a small cost in percentage terms. Homes designated as defective - Certain types of houses and flats have been designated as defective under Part XVI of the Housing Act 1985, because: They are defective by reason of their design or construction; and Their value has been reduced substantially because their defects have become generally known. If your home is one of these, we will tell you before you buy. You should then consider whether it is wise to buy. You might have difficulty in selling later, because anyone thinking of buying your home from you might be unable to get a mortgage. If you do decide to buy, it is very important to find out the structural condition of your home. You should make sure that the price you pay for it reflects the structural problems and the fact that you may find it difficult to re-sell it later. Regular Costs to Homeowners There are also ongoing costs involved with buying your home. These may not have occurred to you, so now is an appropriate time to review what they are likely to be so you do not have unexpected costs. Mortgage Payments Your mortgage payments will be due monthly. Utility Bills as a tenant, you are most likely to be paying all the utility bills for your home now. Utility costs include water, sewerage, gas, electricity and telephone services. Buildings insurance - (Previously paid by your landlord). This is essential. It is needed to cover the full cost of rebuilding your home if it were to be destroyed by fire or some other incident. If you are buying a flat, the buildings insurance will be provided by the council and charged to you through the annual service charge. Contents insurance - You should insure the contents of your home against theft and other risks. Council Tax As a tenant you should already be paying this charge and this amount will not change once you become the owner of your home.
6 Benefits - Are you eligible for Housing Benefit? Remember, as an owner- occupier you will not receive any housing benefit to help with your mortgage costs. You may be entitled to income support to help with such cost, however this is not usually payable for nine months after you first claim it. The Elderly - If you are elderly and own your own home, its value may be taken into account in assessing whether you are eligible for financial help with the cost of residential care. Maintenance of your Property When you are a tenant, you receive a free repair service. After you purchase your home, you alone will be responsible for the future repair and maintenance of the interior of your home. Not only routine repairs but improvements such as a new kitchen or bathroom. If you purchase a house you will be responsible for all repairs and services to the exterior of the property and its grounds too including repairing a roof or replacing windows. The cost of this work can be very expensive. Repairs can occur at a financially inconvenient time for owners. It is therefore prudent to set money aside at regular intervals to cover for such repairs. If you are purchasing a flat, the Council retains the responsibility for the exterior and common parts but recovers its costs in the annual service charge. You need to be aware that in the future the block in which your flat is situate may need major works/repairs, for which you will have to contribute to the cost. It is up to the council when this work will be done. This may include new roofing, new communal doors and replacing windows. Please see Buying a Council Flat below for further details. Shared arrangements - Your property may be subject to certain shared arrangements. If so, these will be detailed in your Offer Notice. An indication of the cost of these shared arrangements will also be given but you must bear in mind that the cost of maintaining or replacing these facilities can sometimes run into thousands of pounds. Example - certain roads in the district are not maintained by the Highway Authority. If your property fronts on to one of these, you will be liable for a proportion of annual maintenance costs and if the road was ever brought up to adoption standard so that the Highway Authority takes over responsibility for its upkeep you would have to pay a share of these costs which could run into thousands of pounds. If your property is affected details will be included in your Offer Notice. Example - you may share a path or a driveway with your neighbour(s). You will be responsible for a proportion of maintenance costs for its upkeep. BUYING A COUNCIL FLAT You will be buying your flat on a long lease, usually 125 years, and you will be known as a leaseholder. As a leaseholder you will own your home but not the building or the land that it is on. Before you apply to buy a flat it is strongly recommended that you read the booklet, Thinking of buying a council flat (this is included in your information pack) and Residential Long Leaseholders A guide to your rights and responsibilities. This can be downloaded from: It is most important that you are aware of the costs and responsibilities you take on when buying a flat. That is why before you complete your purchase we will offer you a pre-sale guidance interview. We will explain your rights and responsibilities as a leaseholder and advise you of the landlord s obligations under the terms of your lease. We will provide you with information
7 concerning the annual costs involved for the provision of services to your block and estate and inform you about major works. Under your lease, the Council is responsible for the upkeep of the building as a whole and any communal areas and facilities. All leaseholders have to pay a share of the council s costs for this work; known as service charges. Your share is based on the number of flats in the block or estate. There are two types of service charge: Annual service charges are for things such as day to day repairs, grounds maintenance and buildings insurance. If you apply for the right to buy, the council will let you have an estimate of what your service charges will cost. The services for which you will have you will have to pay will be listed in your offer notice. Major works service charges are for any large scale repairs and improvements the council may carry out to the block or estate, such as redecoration, renewing the roof, replacing windows and doors, replacing door entry systems etc. If you apply for the right to buy the council will let you know what major works it expects to carry out in the next five years and give you an estimate of the cost of works. The estimate will be at today s prices so we are allowed to add an amount for inflation when the works are carried out. As well as annual service charges you will have to pay the council a nominal rent (known as a ground rent) of 10 per year. Remember, if you do not pay your service charges, the council may ask the court for a money judgement against you. This may affect your future ability to obtain credit. The Leasehold Advisory Service (LEASE) is set up by Government and provide free advice on buying a flat and on service charges. You can contact them on , or go to THE RIGHT TO BUY PROCESS Step 1- applying to buy - If you wish to apply for the Right to Buy, you need to fill in an application form and hand it to the Home Ownership Officer or post it to Mid Suffolk District Council, Housing Services, 131 High Street, Needham Market, Ipswich, Suffolk, IP6 8DL. If you have any queries regarding the Right to Buy scheme or need any help in filling in the application form please contact the Home Ownership Officer on We will acknowledge receipt of your completed Right to Buy application within 3 working days of receipt. Step 2 the Response Notice - We will send you a Response Notice (Form RTB2). This tells you whether or not you have the right to buy your home. Normally this will be sent to you within four weeks of receiving your application. If we decide that you do not have the right to buy, we will tell you why. If you are not satisfied with our decision, you can appeal. Details of how to do this will be sent with Form RTB2. Step 3 the Section 125 Offer Notice - If your right to buy is admitted, we will be asking our Valuer to contact you for the purposes of valuing your property. Following receipt of his valuation report, the Council then has eight weeks if your property is a house and twelve weeks if your property is a flat, to send you a Section 125 Offer Notice.
8 The Section 125 Offer Notice is an important document and you should read it very carefully. It will tell you 5 main things: It will describe the property which you have the right to buy It will tell you the price we think you should pay for it. This is determined by calculating how much your home was worth at the date on which you submitted your application from and then subtracting your discount. Any improvements you have made will not affect the price. If your discount is reduced because of the maximum allowed, the notice must say so. It will give estimates of the service charges for flats and the cost and liabilities that you may have for any shared arrangements. In addition, it will tell you about any planned major works the council intends to carry out in the next five years. It will describe any structural defects that we know exist. It will contain the terms and conditions that we think should be attached to the sale. We also have to include an Energy Performance Certificate (EPC) with the offer which contains information about how energy efficient and carbon efficient your home is. If you think we have valued your home too highly, you have the right to request an independent valuation from the District Valuer. You must request this through us within twelve weeks of the date of the section 125 Offer Notice. You will then have four weeks to put your case to the District Valuer. If you you have had a survey done, you can send a copy of your own surveyor s report to the District Valuer. The District Valuer s valuation will be final, even if it is higher than that of your landlord. You will either have to accept it or withdraw your application. Step 4 getting a Survey - The Council do not carry out a survey of your home, you will have to arrange this yourself. Before you buy your home we will tell you if it is one that is designated as defective, under the Housing Act 1985 and whether you could experience problems (because of the special way it was built). We will also let you know of any structural defects that we are aware of in the Offer Notice. When you apply for a mortgage, the bank or building society will have a survey done, but this is only to value your home. It may not uncover any structural problems that may exist. For your own peace of mind, it is recommended that you should arrange for an independent survey by a qualified surveyor. Step 5 getting Legal advice and arranging a mortgage - Before deciding whether to buy, you should get legal advice, particularly if you have worries about the terms of the sale. It is important that you get your own advice on what you ll have to look after, and what you ll have to pay once you ve bought your home. If you don t know a solicitor or a licensed conveyancer, you might ask your bank or building society. Your local library should also have a list of solicitors in your area. You should always ask how much it will cost before you employ a solicitor or licensed conveyancer. Please make sure you pass on to your Solicitor all the formal documents we send you. Once you have received the offer notice, you may wish to arrange for any mortgage you may need. Step 6 telling us what you want to do next - Once you receive the Offer Notice you will have to let us know whether you want to accept the offer within 12 weeks. Do this by completing and returning the Notice of Intention form, which accompanies your Offer Notice.
9 If you fail to let us know we will send you a 28 day Notice requiring you to inform us whether you intend to proceed or withdraw. If you do not reply within the 28 day period then your application will be cancelled. If you do not intend to buy, it is still in your interest to let us know as soon as possible or you may miss out on improvement works that may be planned for your home. Step 7 - completing your purchase If you are happy with the terms for selling your home, and you have arranged to raise the money, you are ready to go ahead and buy. The transfer documents will be drawn up and passed to your solicitor for approval. Once your solicitor has received the documents, it s up to you and your solicitor to choose a date when you want to complete. Completing is when you have signed the transfer, or lease. It is the time that you pay us for your home, and it becomes your property. Just before completion we will undertake a rent check to ensure your rent has been paid up-to-date. We can stop completion if you owe rent. If you live in a flat, the council will close your rent account and open a service charge account. You will then be liable to pay an annual service charge and ground rent. If you do not complete within 12 weeks of accepting the Offer, and we are not aware of any problems that are holding up the sale, we may have to write to you, asking you to complete the purchase within eight weeks. If you don t respond we will send you a Final Notice asking you to complete your purchase within a further period of eight weeks. If you don t complete the purchase we will have to withdraw your application. This means that if you want to buy your home you will have to go through the whole process again. Delay procedure for landlords and tenants You can check on the progress of your application by telephoning the Home Ownership Officer (contact details are below). We will be pleased to keep you informed and it is hoped that a simple phone call will put your mind at rest. In the unlikely event that the Council do not send you Form RTB 2 (the notice telling you if you have the right to buy) or the Section 125 Offer Notice within the time spans mentioned in steps 2 and 3 above, and you have not received a valid reason for the delay you can ask the Council for a Section 153A Initial Notice of Delay. Once served on the Council, we must respond with an explanation for the delay or issue the document in question within 30 days. Should the delay continue beyond that time, you can serve on the Council a Section 153B Operative Notice of Delay. Once served the Council must respond with a suitable reason for the delay or issue the document in question within 30 days. Should the delay continue beyond this point you would be eligible to claim rent back from the Council. RESALES Discount Repayment - If you sell your home within the first five years of purchasing, you will have to repay some or all of the discount. During the first year, all of the discount will have to be repaid; during the second year, four fifths must be repaid; during the third year, three fifths must be repaid; during the fourth year, two fifths must be repaid and during the fifth year, one fifth must be repaid. The repayment of discount will be based on a percentage of the re-sale value of your property within the five years of purchase. The percentage to be applied will be indicated in the Offer Notice. An amount attributable to improvements carried out by you between the date of purchase
10 and the time of sale will be deducted subject to agreement. It is therefore in your interests to keep a record of any improvements that you carry out to your home. For example, if your home was valued at 130,000 at the time you bought it from the Council, and you received a discount of 52,000, this means your discount in percentage terms was 40%. Please see the illustration below for the sale of a house in the fourth year of ownership: Market value on original sale : 130,000 Discount on original sale: 52,000 % Discount on original sale : 40% Re-sale Value: 150,000 Discount to be repaid: 150,000 X 40% ( 60,000) X 2/5 = 24,000 After five years, you can sell without repaying any discount but the condition regarding Landlords first right of refusal (see below) may still apply. Right of First Refusal - If you wish to sell your property within the first ten years of purchasing it under the Right to Buy, you must first offer it to be bought back by Mid Suffolk District Council at full market value. A leaflet explaining the procedure is available upon request. Deferred Resale Agreements - 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 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. CONTACTING US If you would like more information and guidance about buying your Council home or if you require an application pack please telephone or write to: The Home Ownership Officer, Housing Services Mid Suffolk District Council 131 High Street, Needham Market, Ipswich, Suffolk IP6 8DL. Telephone or