Pros and cons of buying ex-local authority property
Former local authority properties can be an affordable step onto the housing ladder. But are they a sensible purchase?
I admit I was nervous as I walked down the dimly-lit street to my friend’s new flat. A scary-looking tower block loomed to my left and a row of almost-derelict garages stood to my right. My own flat in a tree-lined leafy suburb a few miles away seemed a different world.
Would we make it safely inside?
Fortunately we did and my attitude changed completely. Inside the flat was lovely – nice and big with a small conservatory and garden. I could almost relax and forget my perceived near-death experience.
Call me a snob, but I gave ex-local authority the swerve when I was looking for somewhere to buy. Perhaps I was wrong?
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Right to Buy explained
Right to Buy was a Conservative policy that begun in the 1980s. It gives some tenants of councils and some housing associations the legal right to buy, at a large discount, the home they live in. Around two million former council homes have been sold off this way.
Right to Buy has been through some changes over the years and is still being offered.
Current rules mean that if you want to sell a home bought under Right To Buy you must offer it to your old landlord (i.e. the council) or another social landlord first. If they don’t agree to buy it within eight weeks you can sell it on the open market. You’ll also have to pay back some of the discount if you sell within five years.
But those that bought under Right to Buy in the 1980s and 1990s, when it was most popular, are pretty much free to sell their properties however they choose. This means there is plenty of ex-local authority stock changing hands.
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The advantages
There are two big advantages to buying ex-council property: space and money.
Flats and houses built by local authorities can be twice the size of modern new-builds, which can be ridiculously small.
As well as getting more space, ex-council properties are significantly cheaper; the Royal Institution of Chartered Surveyors (RICS) reckons ex-local authority property is about 20% cheaper than comparable private properties.
Cheaper prices mean buyers can afford to live in an area otherwise out of their reach. This might mean living in a hip, happening area or just somewhere central and convenient. For Londoners, buying an ex-council property might be your best chance of living affordably in the holy grail of zones one or two.
For landlords, ex-local authority property can produce a good yield. Young tenants, in particular, will jump at the chance to live centrally and all the bedrooms tend to be suitable to rent, unlike the tiny second or third bedrooms of some newer homes.
Recent figures show that a third of ex-council homes sold in the 1980s are now owned by private landlords. Controversially many are rented back to the council.
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The disadvantages
The obvious disadvantage to ex-council property can be the stigma. Tower blocks in particular can look daunting from the street and some ex-council estates are far from pretty. For this reason you’ll be unlikely to see the same house price inflation (assuming prices keep rising) as other properties in the same area.
Another big downside of flats is the local authority is likely to be the freeholder. This means it will have responsibility for the upkeep of the communal parts of the building. Flat owners (or leaseholders) will pay a service charge for this and also for “major works” which take place every few years.
In an estate where some flats are still owned by the council and some by private owners, some local authority freeholders will hike the service charges to subsidise the council flats. Be warned – these bills can cripple you.
Another downside is that some mortgage lenders aren’t keen on ex-local authority property, especially high-rise tower blocks. So you’ll have less choice of mortgage products than if you bought another type of property.
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Comments
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Let's not delude ourselves that Germany, or any other European country for that matter, has any kind of housing model which is massively better than our own. For some bizarre reason people seem to think that the world orbits around London so all affordability debates and some utterly absurd political bigotry seem to be based on what Southerners can or can't afford. There are jobs and affordable housing together with a much more balanced environment in many areas of the country.
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The reason that council housing looks shabby is because its run on a shoestring. In Hackney they have a policy of keeping the rents below 50% of the local market rent. Because rents are so out of step with the local market tenants become effectively trapped in their tenure. The council of course is forgoing revenue. If they can balance the books on the current rents, they could by increasing rents create a surplus which could improve properties or even build new properties. Occupiers would pay higher rents. If they met the conditions for housing benefit (set according to need) they'd get higher benefit, if they didn't (like Bob Crow, union boss) they'd pay the higher rent. They might then decide that transition to the main rental market might suit them better - or even buy a property for themselves. Labour like to keep people in low rent accommodation because it guarantees them votes come every election - just think it through.
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Possibly it was intended. I think it the intention was to liberate the tenants so that they could become houseowners; I doubt if the consequences were planned. I don't think governments are capable of such planning nowadays. Yes, I am sure there was an element of election "bribery" about it, though. Don't all governments do that now? There is a much greater transfer of wealth from the "poor" to the "wealthy" going in right at the moment because of artificially low interest rates. Savings are being robbed; pension funds are being robbed; the "poor" and even the "middle class" are being robbed by low interest rates. This is not because of a conservative led government; it will continue if labour get elected. Governments cannot ease back from "quantative easing" because they have borrowed too much in the last 40 years and are continuing to do so. I cannot see the trend changing until we have a radical change from the traditional "left" and "right" politics in this country. We need to (somehow) establish a government based on the moral principles of honesty to the voters, right and wrong and on reflecting the views of the country. To get back on the subject, we do have a stock of social housing in this country but it seems to me to be badly allocated. Council housing boomed after WW2 when prefabs we erected everywhere to house the returning forces. Even then, it was misallocated. I am convinced that private housing is the long term answer and private renting is the way to go for most working people but, having said that, I do agree with you that there is an imbalance of wealth that needs to be addressed. Maybe rent control is the right way but I think that, until QE is ended, housing prices will balloon and the rents will follow. I do not think that my tax contributions should be used to finance people who are capable of looking after themselves when the real answer is in a substantial change of government policy on borrowing, interest rates, wasted expenditure etc. If we left the corrupt EU, we would immediately save a gross of about £54m a day (£36m net) in contributions and then we could tax pan-European companies operating in the UK as parliament decides, not as the EU dictates. There is a lot that can be done and needs to be done. Not with our existing "left" and "right" parties, I fear. Selling off the council housing stock was a mistake for the country but more government intervention is not the answer. Successive governments have proved, time and time again, that they are not capable of running large schemes, whatever they are. They should be policy-setters and policy-enforcers. The private sector should be taking the financial risks. r.
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24 February 2014