The Financing Dilemma Facing Right to Buy and Right to Acquire Applicants

Following a slump in right to buy (RTB) and right to acquire (RTA) sales during 2020-2021, sales for the year through to March 2022 have bounced back to their pre-COVID levels. It is clear that there is still a high demand for affordable housing and tenants are still looking to take advantage of the discounts available through RTB and RTA.

However, with the current economic crisis and rising costs of living, tenants are facing a hidden dilemma in relation to their application – timing!

When to apply for a mortgage

If tenants apply for a mortgage too early in the process and an issue arises with the sale, there is a risk that the mortgage offer expires and then they may find themselves unable to proceed due to affordability. As mortgage interest rates rise, any new offer may be on terms that are too expensive, especially with the squeeze on disposable income as a result of inflation and rising energy costs. Whereas before lenders may have been willing to offer extensions after the expiry of an offer, they will be more reluctant to extend mortgage offers in the current climate, which may leave tenants unable to proceed.

If tenants wait to apply for a mortgage until their RTB or RTA application is processed, they run the real risk of this causing a delay with the transaction. The consequence of this could be the issuing of a notice to complete by the housing association and ultimately having the sale withdrawn. With house prices rising, housing associations are under an obligation to ensure they sell at the current market value (less discount). They are not in a position to allow sales to drift on indefinitely as it is a regulatory requirement that they have an up to date valuation.

What can housing associations do to assist?

1. Advise tenants of the expected timescales of the sale and ensure that the tenant starts looking at funding if they have not already done so.
2. Ensure the necessary sales documentation is prepared and ready to go to the housing association’s legal team on instruction so paperwork can be issued in a timely manner.

What can a tenant’s solicitors do to assist?

1. Notify the housing association’s legal team of any mortgage expiry date so that this can be taken into consideration during the transaction.
2. Be more proactive in chasing the mortgage offer via the tenant or mortgage advisor, to prevent unnecessary delays.

As long as housing associations follow the legislative requirements for processing an application and the sale of a property, the majority of the risk will lie with the tenant. Housing associations should not be afraid to impose completion deadlines on their transactions where the tenant is taking too long to sort financing, in order to protect their own interests.

With no let-up in sight for the ongoing cost of living crisis, tenants should think carefully as to whether now is the optimum time to purchase their property. If they do decide to proceed with a RTB or RTA application, they should consider reviewing the financing options at the same time.

Despite a slow down during 2020/21, it is clear from the bounce back that there is still a strong desire from many tenants to apply to buy their properties. It remains to be seen whether this continues when the voluntary right to buy proposal from the Government comes into force. However, there are some market signs that the sharp rise in the cost of living could well be impacting people’s future plans to become a homeowner, at least in the short term. The associated risk of buying your own home is the move from having the security provided by an assured tenancy (with an understanding landlord in terms of debt and rent arrears) to the more risky option of owning your home with a mortgage provided by a commercial lender who will likely have a zero tolerance towards mortgage arrears. It will be interesting to see how things evolve over the next year and whether there is a marked impact on the number of completed sales.