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New Right-to-Buy home loan scheme announced for council tenants

Reviving a right-to-buy your home housing scheme first introduced by British Prime Minister Margaret Thatcher more than 15 years ago, Communities Secretary Ruth Kelly recently announced plans that the Government is to give approximately 1.7 million council and housing association tenants in the UK the right-to-buy a stake in the property they live in.

Under the proposed new scheme, only those council and housing association tenants who have had a consistent record of good behaviour, with regular timely rental, payments would be eligible to purchase a stake in their home. Moreover, applicants would also need to evidence their active involvement in the local community.

However, the new proposals do plan to relax the current minimum equity investment that council and housing association tenants need to invest in order to be allowed to buy a stake in their home.

Under current rules, which were previously tightened by Ms Kelly's predecessor John Prescott, council tenants in the UK who wished to purchase a stake in their home were required to purchase a minimum stake of 25 percent of the property's value. With escalating housing values in the UK, under Ms Kelly's announced new proposal, tenants will be allowed to purchase as little as a 10 percent equity stake in their home. Further, those tenants who do purchase a stake in their council property will also be permitted to periodically increase the rate of their equity interest in the property until such time as they become outright owners of the property.

At this time, Ms Kelly says that the government will only allow tenants who live in mixed estates, with both public and private housing, under the scheme. In addition, the estate will need to have designated green areas, be child friendly, and tenants will need to agree to sign rigorous tenancy agreements to keep trouble-makers away.

Although the mechanisms of exactly how tenants will be able to finance the purchase of their equity interest in their home under the proposed limitations of the scheme as outlined by Ms Kelly, it is highly likely that the government will need to try and bring onboard home loan lenders in the UK so that they can offset the costs of the scheme with the hybrid mortgages and home loans being offered by such UK home loan lenders.

Commenting on the proposed new government scheme, Ms Kelly stated that the time was now right to try and create "more small steps to enable people to get on the housing ladder."

Richard Smith
1st February 2007


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