RTB consultation

Further to the reduction of Right to Buy (RTB) discounts announced in the last budget, the government has published an open consultation seeking views on reforming the RTB.

The government is seeking views on the following:

• the qualifying criteria for tenants
• initial and maximum discounts as a percentage of the property value
• which types of properties should be exempted under the scheme
• whether there should be increased restrictions on properties after sale
• the replacement of homes sold under the RTB
• rules governing the use of RTB receipts and how these could be simplified.

Any changes to the RTB as a result of this consultation will not only affect local authorities, but also RPs who have housing stock which is subject to the RTB or the Preserved RTB. The government has confirmed that it will not be extending the RTB to housing associations.

The consultation ends on the 15 January 2025.

The consultation proposals in summary:

Eligibility: currently a tenant is a qualifying tenant if they occupy a property with a secure tenancy and have been a public sector tenant for at least three years. The three years need not have been continuous. There are other conditions but there are no proposals to amend those.

It is proposed to lengthen the eligibility requirement, and the government seeks views on whether this should be increased to 5, 10 or more than 10 years. This is to ensure that sufficient time is given to enable councils to rebuild housing stock, and that the RTB benefits those tenants who have lived in, and paid rent on, their social homes for many years. There is an additional proposal that any person who has previously benefitted from the RTB should not be able to do so again, and that people who own another property should not be eligible.

Local authorities should consider this proposal in light of their business plans and allowances made for anticipated RTB receipts under the current regime, and the impact of the change to a longer qualifying period. Additionally, they will need to take into account the longer period for which they will be required to maintain and repair those properties up to the point of sale. They will also need to consider the impact of the change in receipts on any development programmes.

Discounts as a percentage of the property value: there is a wide range of discounts for properties sold on the RTB related to the length of occupation of a property, which was increased in 2012. Across the UK this increase meant that the average discount was £72,000. There will be a transitional return of the maximum discount levels to pre-2012 values of between £16,000 and £38,000 (depending on location), which will increase RTB receipts and reduce the number of replacement properties required.

However, in relation to future limitations on the discounts available, the consultation seeks views on the minimum and maximum levels of percentage discount which should be available. The proposed percentages are:

Minimum: 0%, 1%, 3%, 5%
Maximum: 5%, 10%, 15%, 20%

Discounts would increase by 1% for every additional year beyond the initial qualifying period, up to the maximum level of discount. It is further proposed that the same level of discount will apply equally to houses and flats.

There will also be discount caps, known as cash caps. By setting a maximum percentage discount and implementing cash caps, the sector can avoid excessively large discounts in areas where property prices are higher, which currently results in local authorities receiving a lesser receipt, impacting on its ability to replace sold properties. This, of course, may not be seen as equitable by potential buyers who live in a high value region, as by setting a cash cap differences in property values across the country will not be reflected. It is not clear whether these will be reviewed and increased or decreased according to market changes in the future.

The impact of these limits will vary between local authority areas, and councils may wish to assess information available about current market conditions and the resulting implications for receipts.

Exemptions: there are no proposals to amend the current exemptions to the RTB. However, views are sought as to whether new build social housing should be exempt from the RTB and, if so, whether new social homes built after a certain date should be exempt indefinitely or, alternatively, whether an exemption should be subject to a time limit of 10, 15, 20, 25 or 30 years.

Providing an exemption for new build stock is suggested in order to encourage councils to invest in new stock. Views are also sought on how to protect council investment in retrofitting and improving homes, including whether they should be exempt from the RTB. There is no detail as to what the definition of retrofitting or improvement expenditure would be, so as not to be too wide or narrow, or for how long the exemption would remain in place. Local authorities will also need to consider whether a retrofit/improvement exemption is necessary, or whether the current cost floor period of 30 years is sufficient.

The government is also keen for councils to diversify revenue streams, and this includes building for market rent, the income from which can be used to cross subsidise social housing. However, at present the RTB can apply to some market rent homes and views are sought as to whether an exemption to the RTB should apply to such homes. There is no detail as to whether this would be a fixed or indefinite exemption, and the consultation distinguishes market rent from social and affordable rent.

Restrictions on properties after sale: currently, a purchaser of an RTB property is subject to certain conditions on resale, such as a sliding scale of repayments of the discount varying depending on how soon the property is resold; the right of first refusal; conditions of use and restrictions specific to rural areas. The current discount repayment scheme is for a period of five years and the proposal is to increase this to 10, encouraging purchasers to retain properties for longer.

It is not specified in the consultation, but presumably the amount repayable would reduce by 10% in each year after purchase for 10 years, as currently the reduction is 20% in each year after purchase for five years. Local authorities should consider whether this will likely have a benefit in terms of income, however it is perhaps difficult to know without also knowing the statistics of the average length of time between a property being purchased under the RTB and the time of resale.

Requirements around the replacement of homes sold under the RTB: the current requirement is that homes are replaced one for one, either by acquisition or new build. However, this has proved to be challenging and has not been met. The requirement also allowed replacement homes to be of a tenure other than social rent which, whilst allowing councils to respond to local need, has meant a reduction in social rent homes. The proposal is that, as far as possible, replacement homes should be for social rent, of the same size, and in the same area. However, councils should consider whether this is aligned with housing needs in the local area, the availability of like for like replacements, including the size and scope of land for development and cost. The government also asks whether there should be a target to replace all future RTB sales on a one-for-one basis.

Simplification of the receipts regime: currently, councils retain RTB receipts to use for new affordable housing. The RTB receipts are net amounts subject to certain factors, and the resulting receipt is to be spent on replacing social housing within five years, after which the receipts are returned to the government. In July, additional changes were made allowing a maximum permitted contribution of 100%, pooling with s106 agreements and removing the 50% cap on the percentage of replacement homes being acquisitions. Views are sought on whether pooling of RTB receipts should be extended to other grant funding.

It is also proposed to remove the five-year time limit, to allow councils more time and flexibility in respect of finance, securing land, entering into agreements and other factors which can impact on the sufficiency of five years. The government is concerned that, without a time limit, monies may be unspent for significant numbers of years. Views are sought on time limits of 3, 5, 8, 10 or more than 10 years, or none at all. The consultation also asks whether unspent receipts should continue to be returned to the government.

There are additional proposals, including:

• incorporating local authority share and buy back receipts into replacement receipts
• attributable debt being calculated by multiplying the average attributable debt of each authority’s stock
• removing the requirement for the return of 75% of mortgage repayments relating to stock sold pre-2012
• allowing RTB receipts to be passed on to ALMOs.

The key for councils is likely to be to review their current RTB receipts and programs for replacement homes and assess whether the proposals are likely to have an impact, whether beneficial, neutral or detrimental.