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Time to put this house in order

It was supposed to give council tenants the chance to get on the property ladder. Instead, Margaret Thatcher's great idea has left a legacy of exploitation

Mary O'Hara
Friday October 04 2002

The Guardian

Giving council tenants the right to buy their home was one of Margaret Thatcher's most popular and enduring policies, but critics now claim it is exacerbating housing shortages as tenants cash in on soaring prices.

Many former council houses and flats - especially those in desirable postcodes in London and the south- east - have doubled or more in price and are increasingly seen as a sound investment.

Right-to-buy was initially intended to "empower" council tenants by allowing them to buy their homes at a significant discount. But instead it has helped spawn a glaring gulf in the housing market by taking one third of council rental properties, 1.5m in number, out of the sector over a time when the number of new homes being built has been in freefall.

The situation came to a head this week when deputy prime minister John Prescott told the Labour Party conference in Blackpool that while he had no intention of abolishing the 22-year- old scheme, he did plan to reform it radically.

But even if right- to-buy is not scrapped, there are concerns that the threat will provoke a rush of applications over the next few months, reducing council stock further and throwing even more fuel on the housing crisis fire.

Mr Prescott told the conference that sweeping reforms were necessary following a series of revelations about "exploitation and abuses" of the system by unscrupulous property companies and landlords.

Evidence has emerged in recent months of property companies offering council tenants money up-front if they buy their home and then sell it on to the company.

And there are growing concerns at the number of former council tenants who are letting their properties in the private rental market, undermining a main objective of right-to-buy - having owners living alongside council tenants in mixed communities.

"Right-to-buy undermined, and continues to undermine, social housing in designated housing crisis areas," Mr Prescott told delegates on Monday. "In those areas where exploitation and abuse of the system exist it would be irresponsible not to act."

The speech was welcomed by critics of right-to-buy - including homeless charity, Shelter. Ben Jackson, Shelter's director of external affairs says the speech vindicates their campaign to reduce the number of council properties being bought when a sufficient amount of replacements are not being built.

According to Shelter, the available social housing stock has dropped by 20% over the past 22 years because of this failure.

"Right-to-buy as it stands is a catastrophic waste of taxpayers' money," Mr Jackson says. "The priority must be to stem the loss of valuable housing. Mr Prescott's statement recognises the desperate need to change the policy."

Shelter, which has a long running campaign to tackle the shortage of affordable housing, says it has nothing against right-to- buy in principle.

But it argues that it is only a good thing if those properties sold off are replaced to help house key workers and the 80,000 families currently homeless in the UK and living in temporary accommodation.

Around 52,000 former council or housing association properties were sold in 2001 while just 18,000 new council properties were built. And to make matters worse, while they are being sold at often huge discounts, the unit cost of replacing each one leaves councils in deficit.

Roy Hattersly, who was Labour spokesman for housing when right- to-buy was introduced, illustrated the problem recently in this paper when he pointed out that while, on average, a social housing property sells for £40,000, it costs the government an average of £65,000 to replace it.

There is no way that tweaking right-to-buy will resolve the crisis in affordable housing. Quite simply, it will take years to increase housing stock, even with the recently announced £1.5bn cash injection for London and the south-east. But, if dealt with carefully, and quickly, it could make some contribution.

Possible suggestions include a temporary suspension of discounts or a permanent reduction on how much is available, a complete ban on right-to-buy in affordable housing crisis hotspots, and an extension of the number of years a person must own the property before they can sell it on the private market from three to six years.

Others advocate reform in the private rental sector to reduce rents, but as organisations such as Shelter have pointed out, any solution needs to go hand-in-hand with a radical rethink of the provision and scale of social housing.

How it works and who can benefit

Right-to-buy was launched by the 1980 Housing Act and allows people to buy the home they are renting from a local authority, housing association or housing action trust.

Only the legal tenant of the property can purchase it and they must have lived there for at least two years.

Originally tenants were offered a maximum discount of 50% on a house but this was replaced in 1999 by nine capped regional cash discount limits ranging from £22,000 in the north-east to a maximum of £38,000 in London.

The level of discount depends on how long the tenant has been in the property, or been a council tenant and on the type of dwelling.

If you sell within three years you must pay back some or all of the discount.

Right-to-buy claim forms can be requested from the landlord. They must provide one. Forms are also available from the department for local government and the regions. If a landlord says someone does not qualify for right-to-buy they must explain why.

Approval and agreement to go ahead can take months but prospective buyers can complain to the council if they feel the process is too drawn out or that they are likely to have to pay more because the property has increased significantly in value during the delay.

A number of properties are automatically excluded from right- to-buy such as those rented from social landlords which are also charities, as well as sheltered housing for the elderly. Other exceptions are listed on the government department website at: www.housing.odpm.gov.uk.

Some properties may qualify for sale yet still be in bad condition (these might be designated as defective under the Housing Act 1985) so purchasers should get a survey done and think carefully about whether the problems could hinder a future sale.

Some councils will buy the property back if there are problems with keeping up mortgage repayments.

The new owner of an ex-council property is responsible for all repair and maintenance and may have monthly service charges if the property is leasehold.

Where to get a mortgage

Prospective borrowers will be judged on the same critieria as standard buyers - the perceived ability of the applicant to pay back the loan, the type and condition of property, and the size of mortgage.

Most big lenders happily arrange deals up to 100% of the purchase price. But some will not offer loans for flats which are in tower blocks more than six storeys high, made of concrete, built to certain structural specifications or in less desirable areas that could make it difficult to sell at a later point.

There are exceptions though. Scottish Widows Bank will consider lending on flats in blocks up to nine storeys while the Co-operative Bank's limit is 10.

Some lenders may ask for larger deposits or charge higher interest if they think the property is in a questionable area, and some will not lend at all on a property in a block where the majority of flats are still in council hands.

Cheltenham & Gloucester, Royal Bank of Scotland, NatWest and Abbey National also have a good record for lending on former council properties.

The long wait that finally paid off

Performing arts lecturer Keith Brazil had been a council tenant in Kennington, south London, for five years before he felt financially secure enough to buy his two- bed flat through the right-to-buy scheme.

His income had fluctuated widely but by 1999, after a few years of steady contracts, he wrote to Southwark Council to see if he qualified.

"I had been working on longer contracts for a few years and I was 35. The timing felt right," he says.

But, Mr Brazil says, council bureaucracy meant that the time from his initial inquiry to actually owning the property was almost two years.

"It was a long process," he says. "They seemed to stretch every deadline. But I would never have been able to afford to buy a property on the open market. When I was looking, prices had already started going up by quite a lot and only the council discount made it possible."

By 1999 Mr Brazil was a council tenant of nine years' standing and he qualified for the maximum London discount of £38,000. The council had valued his flat at £92,000 but on the advice of a surveyor friend he had an independent valuation done. This came out at £7,000 less than the council estimate and the local authority agreed to a new price of £85,000 - equal to £47,000 after the discount.

"I finally settled on a mortgage, discounted for one year, with the Nationwide. I have found affordable housing that I own and that makes me feel secure," he says.

What's more, similar properties in the area are now selling for more than £140,000.

Copyright Guardian Newspapers Limited

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