A tenant's guide- The Right to Buy

Buying your home is a major financial commitment. Apart from paying for it (up front in cash or with a loan), you will then have to maintain it. If you buy a flat on a long lease, you will also have to pay service charges.

Unless you are going to buy your home with cash, you will need a mortgage (i.e. a particular kind of loan). There are various kinds of mortgage, which your bank or building society can tell you about. An independent adviser may also be able to help. See the free Financial Services Authority (FSA) guide to mortgages for information on the different types of mortgage available - call the FSA Consumer Helpline on 0845 606 1234. You will have to repay the mortgage, plus interest, by instalments (usually, monthly ones). Normally, mortgages have to be repaid over a period of 25 years, but can be longer or shorter. Flexible mortgages are available which allow you to vary your payments (subject to rules set by the lender). The lender may not be prepared to lend you the full amount that you need to purchase your home. If so, you will have to pay the rest from your savings. If you sell your home later, you can use the money from that sale to pay off the rest of your mortgage. But remember that the value of homes can go down as well as up and in some cases people find themselves in 'negative equity'. This is when the mortgage on your home is larger than the amount for which you are able to sell it. If you can't keep up the repayments on your mortgage, the lender may go to court and ask to repossess your home.

If you ever have difficulty keeping up with your mortgage repayments you should contact your lender as soon as possible and discuss it with them. You can also seek advice from organisations such as the Citizens Advice Bureau (CAB) (opens new window) or the National Debtline (opens new window).

How much would you need to borrow?

The amount you need to borrow depends on:

• the full market value of your home; less
• any discount you may be entitled to; less
• any cash you can put towards the purchase.

When the council has valued the property you will receive a Section 125 Notice letter from the council telling you how much the council thinks your home is worth when you applied to buy it and what you should pay for it, taking into account the discount. Remember, your discount can be reduced by the cost floor rule (see section 7) and cannot be more than the maximum discount available in your area (currently £84,600 in Wiltshire).

Other regular costs of home ownership

• Council tax and water charges - You may pay water charges as part of your rent, and perhaps your council tax as well. If you buy your home, you will have to pay these separately, straight to the water services company and to the council.
• Insurance - You will need to consider taking out insurance cover for your home and mortgage. There are four main types:
  • Buildings insurance. If your home is a house you will need to arrange buildings insurance to cover the full cost of rebuilding your home if it were to be destroyed by fire or some other incident. If your home is a flat, the council arranges buildings insurance for the whole block of flats, but the council will require you to contribute towards the cost of the insurance. If you need a mortgage to help buy your home, the lender will insist that you have buildings insurance if your home is a house or the lender will insist on approving the council's Block Insurance Policy provisions before lending you money.
  • Contents insurance. As well as buildings insurance, you should insure the contents of your home against theft and other risks.
  • Life assurance. This is needed to pay off your mortgage if you die before the end of the mortgage period. It means that your family is not left with the heavy burden of mortgage debt.
  • Mortgage payment 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. In many cases, mortgage payment protection insurance will give you the security that you need. There are various insurance policies that offer cover against these risks. The terms, level of cover, and costs vary. You should therefore shop around for policies that best suit your needs.
• Repair and maintenance - If your home is a house and you buy it, you will be responsible for the costs of all repairs and maintenance, regardless of the condition of the property when you bought it. If you are buying a flat on a long lease, you will have to pay service charges to the council to cover a contribution towards the costs of maintaining the structure of the block of flats, the communal areas and any communal service pipes and installations. As well as paying services charges, you will be responsible for the repair and maintenance of the inside of your flat. It is your responsibility to get advice on the condition of your home before you complete the purchase. It is therefore important that you have a survey done.

One off costs of buying your home

• You should employ a solicitor or a licensed conveyancer to look after the legal side of buying your home. The Citizens Advice Bureau (CAB) 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. Before employing anyone, always ask how much their advice will cost.
•  You should have a survey of your home done. These can cost between £250 and £600, or more if your home has any special problems. You should consider one of these:
•  An RICS Home Buyers' Survey and Valuation. This is a report and valuation in a standardised format, to tell the buyer of all significant defects, but not minor ones. It is likely to be adequate for most properties and provides a guide to value. It is likely to cost around £250-£500.
•  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, or obviously in need of repair, or if you are considering making alterations. It may cost £600 or more, and may not be available if your home is a flat.

You can get more information about both of these from the Royal Institution of Chartered Surveyors (RICS) (opens new window). Your lender may be able to arrange for its valuer to carry out the survey, which could save you paying for a separate valuation. You should get a survey done after you receive your section 125 notice (the notice that has to be sent to you by the Council if you apply to buy your home).

You should ask how much it will cost before you ask anyone to go ahead with the survey. Some types of house have been officially designated as 'defective' under Part 16 of the Housing Act 1985. Certain types of houses and flats have been designated as defective, 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, the council must tell you before you buy. You should then consider very carefully 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.

The council is legally obliged to tell you if this applies to you.

When a sale is completed, you must pay the Land Registry to register you as the new owner.

You may have to pay Stamp Duty, which is a tax that people pay when they become homeowners. Stamp Duty is worked out as a percentage of the price you pay for a property that is worth more than the threshold set by the government.