May 7, 2023
Renting Your Right to Buy Property – All You Need to Know
The Right to Buy scheme is a government initiative that allows eligible tenants of council or housing association properties to purchase their homes at a discounted price. If you’re interested in or have recently bought through the Right to Buy scheme, you may be wondering “Can I rent out my Right to Buy property?” In this post we’ll discuss everything you need to know about renting out a Right to Buy property.
What is a Right to Buy property?
A Right to Buy property is a council or housing association property which the tenant has the right to purchase at a discounted price. The scheme was introduced in 1980 and was designed to give people more of a chance to own a property.
The discount is based on the length of time that the tenant has been renting the property. This can range from 35% to 70% of the property’s value.
How does the Right to Buy scheme work?
Before we attempt to answer the question “Can I rent out my Right to Buy property?” let’s first understand how the scheme works.
To be eligible for the Right to Buy scheme, tenants must have lived in their council or housing association property for at least three years. The property must also be their only or main residence, and they must not be in arrears with their rent.
Once the tenant has applied for Right to Buy, the landlord has eight weeks to respond with an offer. If the tenant accepts the offer, the council or housing association has 12 weeks to exchange contracts and complete the purchase.
Can I rent out my Right to Buy property?
It is not impossible to rent out a Right to Buy property, but there are rules in place. The Right to Buy scheme stipulates that once they’ve purchased it under the scheme, the buyer must live in their home as their main residence for a minimum of five years before they can sell it or begin to rent it out, without losing the discount they received to help buy it.
This rule is in place to prevent tenants from buying the property at a discount and then immediately renting it out at full market rate. This goes against the principle aim of the scheme which is to help people become homeowners.
You should speak with the council or housing association who originally owned the property. Each one will have slightly different rules relating to renting out your Right to Buy property. Some may stipulate different lengths of time to live in the property before renting, others may charge a sub-let fee.
Renting out your Right to Buy property
If you meet all the criteria for renting out your Right to Buy Property, and you purchased it using a mortgage, you should seek advice from your mortgage lender about your intentions. They may require you to switch to a buy-to-let mortgage.
Before approving you with a buy-to-let mortgage, your lender will need assurances that your rental income will cover the cost of the investment, even if your rental property has void periods. You will need to demonstrate to the lenders that your Right to Buy property has a good rental yield. For an ex-council house, lenders will be looking for a yield of about 5.5%. It’s therefore important to do your research for your area and understand how much rent you can viably charge tenants.
A guaranteed rent scheme is worth exploring if you’re unsure about the rental market or if you do not have time to devote to acting as a hands-on landlord.
It can also help to maximise your rental yield by covering all the everyday costs of renting, such as property management, tenant liaison, tenant sourcing, interim inspections and rent collection. You’ll receive a monthly rent by standing order every month, even if the property is untenanted, again maximising your rental yield.
In summary: can I rent out my Right to Buy property?
Most council or housing associations will allow you to rent out your Right to Buy property once you have lived there for a set amount of time. But do take advice from the organisation that sold you the property, as well as your mortgage lender if appropriate.
A guaranteed rent scheme such as the one offered by City Borough Housing is wise move if you’re keen to go ahead with renting out the property. It’s reassuring to know that everything is dealt with by a professional team whilst you reap the rewards of guaranteed rent.
Get in touch with our friendly and knowledgeable team if you’d like to find out more about the benefits of a guaranteed rent scheme, and to request your free rental valuation.