David Cameron has proposed significant changes to right-to-buy legislation in the build-up to the general election, to some harsh criticism.
The right-to-buy extension will increase the discount available to tenants to buy outright the council and social housing they’re currently renting, up to 35% of the house’s market value (50% for flats).
Here, we outline the key criticisms facing right-to-buy in one place, and how the market may be affected by these changes.
It has been suggested that the short-term benefit of getting rental-tenants on the property ladder will have protracted long-term disadvantages, not least because the council-provided accommodation will become privately-owned.
The problem is that the number of houses is already too low and will, in effect, become lower once social housing becomes private – especially if it is not replaced. Indeed, of 26,000 homes sold under right-to-buy since 2012, only 2,298 have been replaced, less than 10%.
Changes in right-to-buy have some good intentions, namely getting tenants on the property ladder, but the discounts that benefit buyers have a traumatic effect on the selling council – a discount means that the property is not being sold for its market value, and therefore more properties must be sold in order to fund the construction of a new home.
Other side-effects of this move include troubling mortgages for buyers. As the economy’s recovery continues, buyers who were approved for a discounted property, and a favourable mortgage, will face increasing repayment rates as interest rates go up – on a property they may otherwise be unable to afford.
We are also likely to see disproportionately higher house prices in the future. If the government fails to come good on its promise to replace every single house that’s ownership is transferred through right-to-buy, supply will go down as demand goes up, which always raises price.
As it stands, we do not know how this policy will affect the property market in real terms, nor even if it will be enforced.
However, we at Martin & Co are constantly monitoring the market and how it can influence your own property management. We can only guess if the buy-to-let market will be significantly affected by the right-to-buy proposals, and speculation may indeed become a self-fulfilling prophecy. Time will tell, but do pay attention to the papers and election updates as your livelihood could potentially face significant change in the coming months.