An MP committee has found that 40% of ex-council homes sold using right to buy are now privately rented properties.
The Commons committee report has said there is a significant concern for selling social housing assets at a discount only for them to become more expensive when rented out by private landlords.
This can happen when existing homeowners consider let-to-buy where the remortgage buyer rents their existing property while buying a new home as their main residence.
The committee has recommended any right to buy home resold within 10 years should first be offered to local housing associations and councils at market prices.
MPs also expressed concern with the government’s proposal to extend right to buy to housing associations and apply a levy on the sale of high-value vacant council homes, as in some cases councils would be forced to sell 97% of properties.
Funding for homes a concern
Right to buy offers a discount to tenants to buy their home and if this is extended in England to the 1.3 million housing association tenants the Commons committee expects a surge in demand.
Housing associations participating in the scheme would be expected to offer discounts to tenants of £103,900 in London and £77,900 elsewhere.
The discounts is good news for first time buyers as they would require a large deposit or higher income to get on the property ladder.
The committee disagrees with the government proposal to fund the discount using the proceeds of high-value council homes as it could leave local councils short of cash resources to replace housing stock.
Housing associations have also been imposed with a 1% rent cut for the next four years which is likely to impede their ability to provide extra new build homes.
Estimates from the Chartered Institute of Housing suggest that the sale of high-value homes is likely to raise only £1.2 billion to £2.2 billion a year, rather than the £4.5 billion required.
Help with the deposit for a new home can come from family members as the equity release buyer can access cash using a lifetime mortgage and give to a child or grandchild.
Need to build new homes
Measures to sell high-value vacant homes by councils would see 22,000 properties sold and it would be very difficult to replace this housing stock.
The government is committed to a programme of building 400,000 new affordable homes by the end of 2021, compared to only 42,710 homes last year.
In addition there is increasing demand for new build homes from home movers and first time buyers through the government’s Help to Buy schemes.
With competition from buy-to-let investors and reduced supply of suitable properties, prospective home buyers must continue renting and saving for a bigger deposit.
There are concerns from the committee that the construction industry would be unable to build the home needed and called for the government to show how homes sold through right to buy can be replaced.
Ministers have said the sums raised by the sale of high-value vacant homes would pay for right to buy discounts and also for the construction of cheaper social housing using the £1 billion Brownfield Regeneration Fund.
What are your next steps?
Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or are a buy-to-let investor.
For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property to repay an interest only mortgage, holidays or home improvements.
Learn more by using the property value tracker chart, mortgage costs calculator and equity release mortgage calculator. Start with a free mortgage quote or call us and we can take your details.
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