Cameron revives right to buy council home scheme

The scheme was announced with great fanfare by Margaret Thatcher’s government in 1980. It offered discounts of 35-50 per cent to council tenants who wanted to buy their homes.

There was a cap of £25,000, which was increased to £50,000 in 1989, the year before Baroness Thatcher was toppled.

This cap was later replaced with regional limits of £38,000 in south east England (the highest in England and Wales) and £16,000 in most London boroughs and Wales (the lowest).

The Labour government took action on discounts because of a shortage of social housing. Regional limits were designed to reflect where these shortages were most severe.

These cuts have made the scheme less popular, and the prime minister is hoping to revive it by increasing discounts for up to 2.5 million tenants.

What changes are being made?

From now on, discounts of up to £75,000, based on the market value of a home, will be available in England. Council house tenants who have lived in their homes for five years will receive a 35 per cent discount, with an extra 1 per cent every year up to a maximum of £75,000.

Those living in flats will receive a discount of 50 per cent after five years, with an extra 2 per cent off every year.

According to the government, someone in Birmingham who has been a tenant for 15 years could buy their £90,000 flat with a £63,000 discount (compared to the previous £26,000 discount).

A tenant who has rented a council flat in London for five years will receive a £75,000 discount, based on a market value of £160,000 (four times more than the previous £16,000 cap).

Mr Cameron said: “I want many more people to achieve the dream of home ownership. In the 80s, right to buy helped millions of people living in council housing achieve their aspiration of owning their own home …. but over time the discounts were cut, they didn’t keep pace with rises in property prices, and this vital rung on the property ladder was all but removed.”

What will replace homes that are sold?

The government says the social housing sector will not decline as a result because money from the sales will be used to build more “affordable” homes.

But the housing charity Shelter says homes that are sold will not be replaced “like-for-like”. This is because people living in the social housing that will replace these homes will have to pay up to 80 per cent of market rent, compared with 40 per cent of market rent today.

Campbell Robb, Shelter’s chief executive, said: “At a time when we already have a critical shortage of affordable housing in this country, this amounts to little more than asset-stripping and will ultimately mean fewer genuinely affordable homes for families struggling on low incomes.”

How will tenants raise the money to buy their homes?

Unless they have substantial savings, most will need a mortgage from a bank or building society.

Shelter says right to buy mortgage holders are three times more likely than other homeowners to be repossessed because they tend to have less money. One in 22 people buying under right to buy is repossessed, compared with one in 77 in the private sector.

The charity argues that “rigorous affordability checks” must be used to ensure that people can afford to buy their own homes.

The Council of Mortgage Lenders (CML) and the Financial Services Authority say anyone who borrows money to buy their council home should have advice from a financial adviser or mortgage broker.

The CML, which represents lenders, says those buying under right to buy will be treated in the same way as other borrowers and will have to demonstrate that the property they are buying is adequate security for the loan and that they can afford to pay it back.

It says that there are circumstances in which loans can be refused because, for example, the property is at the top of a concrete tower block and is considered too risky an investment.

Labour says that with unemployment rising and household incomes under pressure, many families will struggle to buy their council home.

What has happened since right to buy began?

Since 1980, just under 2 million council homes have been sold in England. In that time, 344,000 council homes have been built.

In Scotland, 500,000 homes have been sold, in Wales 140,000, and in Northern Ireland 117,000.

In England, sales have been declining year on year, from 84,000 10 years ago to 3,700 in 2011.

In 1980, 75,000 council homes were built. In 2010, the figure was 700. In the 1970s, a third of the population lived in a council home. Now social housing tenants make up 17 per cent of householders.

There are nearly 2 million families on council house waiting lists.