In accordance with current legislation, an established tenant submitting a successful application is permitted to purchase their rented home at a price lower than the full market value, and the amount of eligible discount is proportional to the length of their public sector tenancy. When calculating the discounted sale price of a property under the terms of the government-backed 'Right to Buy', 'Right to Acquire' or 'Social Home Buy' schemes, there are a number of factors to be considered:
- Cost Floor - The accumulative total spent on a property during the last 10 financial years (from the date on which the application to buy was received). Under the cost floor rule, the discount received by an applicant must not reduce the offer price below what has been spent by the landlord on building, buying, repairing or maintaining it. Valid expenditure included in the cost floor total would comprise renovation costs (e.g. bathrooms, kitchens, etc.), property improvements (e.g. cladding works) and even the cost to build the property or acquire it from another owner.
- Defects - Any known structural defects with the building included in a home buy case must be reported to the applicant. Additionally, certain types of houses and flats will have been designated as defective under the Housing Act 1985, because they are defective by reason of their design or construction, and as a result their value has been reduced substantially because such defects have become generally known.
- Property Valuation - There are a number of common methods used in determining a property's worth in the market place: (1) Comparable Method - Comparing similar types of properties in a given area in order to assess their relative value; (2) Repayment Method - The premise of this calculation is to repay the value of the property over a 12-15 year period, based on the current rental income; (3) Investment Method - The estimated sale price of the property less the original building costs; (4) Cost Method - Also referred to as the 'Base Value' method, this calculates the value of the property based on the plot of land it occupies and the actual building costs.
- Previous Discounts - If an applicant has purchased a property before under a home buy scheme, the amount of discount received on that sale is usually deducted from the eligible discount for any future purchase application. All previous discounts offered and received can therefore be recorded against an individual home buy case.
- Property Type - Different levels of discounts are available to applicants depending on the type of dwelling they wish to purchase. Typically, the discount offered for the sale of a flat will be considerably more than for a home, and in schemes where the length of tenancy is rewarded by an incremental annual discount on top of the baseline level, the preferential percentage rate is once again weighted towards the purchase of a flat.
Separate help articles have been created for each key aspect of home buy cost evaluation management, including:
In addition, separate help articles focus on the creation of discount percentage thresholds, specifically:
