Supporting underserved borrowers through Right to Buy mortgages

The Right to Buy (RTB) scheme has long been a crucial pathway to homeownership for tenants of council and housing association properties. Offering an affordable and more accessible path to homeownership, the scheme has often been considered an ideal way for lower income earners to get a foot on the property ladder.

However, recent government changes have altered the landscape considerably. While the maximum discounts previously available had varied according to the length of tenancy and the council location, the maximum discounts now available under the scheme have been reduced to pre-2012 levels and capped at between £16,000 and £38,000, depending on location.

The reception to these changes has been mixed, with some seeing them as a necessary adjustment, while many borrowers and other industry stakeholders consider them to be too low and argue they limit access to affordable homeownership.

Yet despite this shifting landscape, borrower demand for RTB mortgages remains robust. In fact, many prospective homeowners are rushing to complete transactions before older, more favourable discount thresholds are fully phased out.

In this fast-moving environment, the role of the broker is pivotal, but being prepared and acting quickly is imperative. High street lenders are moving to tighten their RTB lending criteria, which means clients are increasingly depending on expert advice and specialist solutions to secure funding in an ever-changing market.

Therefore, understanding this evolving market is critical for brokers if they are to support these underserved borrowers and ensure they continue to build a strong pipeline of loyal customers.

Demand remains high

Despite the changes to the RTB discount scheme, specialist lenders have continued to see a steady flow of RTB mortgage applications in the market.

Many of these are still being assessed under the previous, more generous discount thresholds, which means there is now a sense of urgency around these applications.

Such borrowers are highly motivated to complete the purchase quickly in order to meet the strict timelines often set by the local authorities. For brokers, this means working with speed and efficiency to gain a deep understanding of both the RTB process and the variety of lending options available in order to effectively serve the needs of the client.

Therefore, adopting a proactive approach when dealing with these clients is crucial. This means gathering documentation early, conducting pre-application checks, and ensuring clients meet eligibility criteria before starting the mortgage process.

This area of the mortgage market has always served a unique and niche demographic; often made up of borrowers who find themselves outside the vanilla, one-box-fits-all profile preferred by mainstream lenders.

One of the many challenges faced by prospective RTB purchasers is that they often have less than straightforward mortgage applications and struggle to secure a mortgage on the high street.

Some of these clients may well have a history of impaired credit, are on a lower income or in receipt of benefits, while others may have little to no credit history at all.

Often, the properties these buyers are looking to acquire will also be considered non-standard by many mainstream lenders, and include ex-local authority properties, high-rise flats, those accessed via a walkway or gallery rather than a traditional internal corridor or built using pre-cast reinforced concrete.

In all these cases, securing a mortgage through a high street lender can be a challenge and borrowers may find themselves faced with a limited number of options.

The role of specialist lenders

It is here that the specialist lending market plays an increasingly critical role in ensuring underserved borrowers have a fair shot at homeownership.

By using flexible criteria and adopting a manual underwriting process when assessing mortgage applications, specialist lenders can help those that would ordinarily fall outside the parameters of mainstream lending - such as those using the RTB scheme - get a foot on the housing ladder.

Adopting this personalised approach is crucial and means that each case is individually assessed to determine the differing needs of every borrower. This allows for a more flexible approach to affordability, where multiple and varied income sources can be taken into account, including those with an impaired credit history.

Rather than relying on automated credit scoring models, specialist lenders tend to carry out manual credit checks to gain a fuller understanding of the circumstances behind each application.

Importantly, some specialist lenders, including Norton Home Loans, are also willing to assess affordability based on a customer’s actual expenditure rather than modelled assumptions. This contrasts with the use of Office for National Statistics (ONS) averages, which can sometimes overstate a borrower’s outgoings. For more frugal applicants or those with demonstrably lower household costs, this approach can make borrowing more accessible and realistic.

For example, a past financial misstep will not automatically lead to the mortgage being declined. Instead, a nuanced assessment of the borrower’s current situation and future prospects is taken into account. This includes a more inclusive affordability review that draws on all aspects of the borrower’s income – such as earnings, benefits, and pensions – as well as irregular or multiple income streams.

This includes a more inclusive affordability assessment that draws on all aspects of the borrower’s credit history, including various income sources such as income derived from benefits and pensions as well as any irregular or multiple income streams. 

This approach allows brokers to present solutions to clients who may otherwise be turned away. It supports the spirit of the RTB scheme by helping social housing tenants take a vital step towards homeownership and promoting financial inclusion.

Capitalising on RTB opportunities

In order to support clients through complex RTB cases, especially first charge applications on unencumbered properties, it’s important that brokers work with lenders well versed in this area of the market if they are to truly help these borrowers achieve their goals.

This means building strong and longstanding relationships with specialist lenders, prioritising early engagement with clients and gathering the necessary documentation required to ensure the deal goes through with minimum disruption.

In some cases, it may also mean offering broader financial advice beyond the mortgage, such as debt consolidation, how to fund home improvements and ways in which to improve long-term financial planning.

Adopting this approach not only means brokers can help more clients realise the dream of homeownership, it will also enable them to cement their reputation as true client advocates and build a strong client bank for the future.

Conclusion 

Despite the recent changes to the RTB discount thresholds, the scheme remains an essential and financially inclusive route to homeownership for many underserved borrowers. It also presents an opportunity for brokers to grow their business while supporting a segment of the mortgage market that truly needs expert guidance.

In the current challenging lending environment, working with specialist lenders to help those who fall outside the parameters of mainstream lending achieve their goal will enable brokers to help clients keep their RTB dreams alive.

Embracing this opportunity is vital, as is working with lenders who offer a flexible and personalised approach to underwriting as they are best equipped to handle the complexities and nuances of this area of the market.

By supporting these clients with expert advice, tailored solutions, and unwavering commitment, brokers can ensure that the mortgage process works with greater efficiency and that RTB transactions are processed smoothly. It will also ensure that homeownership remains within reach for every client that aspires to achieve it.