Some 23,000 council tenants in London bought their property last year under the right to buy scheme. If you’re considering financing a right to buy in Shoreditch, understanding the challenges that lie ahead of you is the first step to successfully securing your home – at a truly ‘below market’ value.
Understanding the Right to Buy Scheme in Shoreditch
The Right to Buy scheme is a UK government initiative that allows council house tenants to purchase their homes at a discount. It was designed not as an investment opportunity, but rather to let residents secure ownership of their own home.
In the heart of London’s East End, Shoreditch offers rich history and vibrant culture. This trendy area features world-class street food stalls and cafés within walking distance from most residential areas – making it appealing for right-to-buy property seekers.
So how does financing a right to buy property in Shoreditch work? What possibilities are there if you’re in social housing and want to make it your forever home?
Funding Your Property Purchase
Your main choice for funding will likely be either through savings or by securing a mortgage. Bear in mind that mortgages might not always be a possibility depending on your personal situation, for instance if you have an insufficient income or credit score.
If obtaining traditional property finance proves difficult for your Shoreditch right to buy, there are alternative solutions available. A bridge loan can help you purchase property in Shoreditch – they work by bridging this gap until more longer-term finances become available – serving as temporary support while seeking other financial arrangements like getting approval for a regular homeowner mortgage.
Making Sense of Discounts
A unique aspect about purchasing via the Right To Buy scheme is access to potentially significant discounts on market value prices which vary based on several factors including length of tenancy and type of property (house vs flat).
The Path Ahead
Navigating the process can seem daunting initially with its myriad legalities and paperwork involved. But don’t worry. Expert advice from a local conveyancing solicitor can simplify this journey, ensuring you have all the information needed to make an informed decision about your home purchase.
Exploring Financing Options for a Right To Buy Property
Role of Bridging Loans and Mortgages in Financing
A regulated bridging loan might help you get off the starting blocks. These are short-term financing solutions used to ‘bridge’ the gap until long-term funding is secured. It’s especially useful when purchasing below market value properties like council homes under the right-to-buy scheme.
The usefulness of these loans lies in their flexibility – they can often be arranged with minimal criteria. The criteria is typically based on three key factors. Firstly you’d need a property to secure the loan against – this would be your intended home. So what you’d require is a regulated bridging loan. You’d need that property to have enough equity in it, typically a loan-to-value (LTV) ratio of up to 75%.
Considering the discount amount you can get is a massive 35% off the market value of your property, up to a max of £127,900 inside London, it means if you live in a property worth £250,000, the Right to Buy discount could be worth £87,500. This means without paying a penny towards the purchase, your LTV ratio could already be 65%.
The third requirement of obtaining a bridging loan is that you have a viable exit – this is the way you’ll pay that loan back. As not all lenders accept applications for a right-to-buy mortgage – it’s just as unique as any other type of mortgage, you’ll need to make sure you can find one who does if this is your exit strategy from the bridge.
Bridging loans do come with higher interest rates due to their short term nature, so planning an exit strategy early on is crucial. This typically involves securing longer-term financing such as a traditional mortgage after buying the property at below market value prices.
Mortgages As An Exit Strategy From A Bridge Loan
Traditional mortgages are a good exit strategy once you’ve made your purchase via regulated bridging loan because most high-street banks offer them with competitive interest rates over longer periods – giving stability while paying off what was borrowed initially during that sweet discount purchase.
Can I buy my ‘right to buy’ property using a bridge loan – but then quickly sell it as my exit?
If you sell your home within 10 years of buying it through Right to Buy, there are certain restrictions that you must take on board.
Firstly, if you sell within 10 years you must first offer to either sell the property back to your old landlord or to another social landlord in the area. This will be priced at the full market value, and if they don’t want to purchase the property after 8 weeks, then you can sell it on the open market.
Secondly, if you sell within 5 years of buying your property via right to buy then you’ll have to pay back some of the discount.
You’ll have to pay back all of the discount if you sell within the first year. After that, the total amount you pay back reduces by: 80% of the discount in the second year, 60% of the discount in the third year, 40% of the discount in the fourth year and 20% of the discount in the fifth year.
So, providing you can afford to purchase your home in the first place, then keep those mortgage repayments in play for 5 years, you could in theory sell your property and be up to £87,500 better off, plus any additional house price increase.
Conclusion
Financing a right to buy in Shoreditch can seem like navigating the vibrant street food stalls of Brick Lane. Get the basics right. Start with understanding the scheme – its benefits and eligibility criteria. Then move onto exploring financing options from bridging loans and traditional mortgages.
Goodluck with starting your journey towards owning a slice of Shoreditch!
