The Five Year Discount Clawback Period
When you buy your home through Right to Buy, you benefit from a discount on the open market value. In exchange, if you sell the property within five years of the purchase completing, you are required to repay a proportion of the discount you received. The amount repayable reduces over time: if you sell within the first year, you repay the full discount; in year two, you repay 80%; in year three, 60%; in year four, 40%; and in year five, 20%. After five years, the clawback obligation expires and you can sell the property with no requirement to repay any of the original discount.
Crucially, the clawback rule applies to selling the property — not to remortgaging it. Remortgaging is switching your mortgage from one lender to another, or taking a new deal with your existing lender. It does not involve a disposal of the property and therefore does not trigger the discount repayment obligation. Right to Buy homeowners can and do remortgage during the five-year clawback period without any risk of being required to repay the discount.
The clawback also applies in some circumstances to certain transfers and disposals short of an outright sale — for example, transferring the property to a family member at undervalue. However, standard equity release, capital raising, or product transfer remortgages are outside the scope of the clawback and are not affected by it. If you are in any doubt about whether a particular transaction might trigger the repayment obligation, the council or housing association from whom you purchased will be able to advise.
There is also a pre-emption right that applies for an additional period after purchase — typically ten years — which gives the former landlord the right of first refusal if you decide to sell. Again, this is a right that only bites on a sale and has no application to remortgaging. Right to Buy owners should be aware of both the clawback and pre-emption provisions in their purchase documents but can remortgage with confidence that neither will be engaged.
How Lenders Calculate LTV on Right to Buy Purchases
When a lender initially provides a mortgage for a Right to Buy purchase, the loan-to-value ratio is typically calculated against the discounted purchase price rather than the open market value. This is because the transaction is taking place at the discounted price, and the lender is advancing money against the property as security at its transacted price. Some lenders offer Right to Buy mortgages up to 100% of the discounted purchase price — meaning the homeowner can buy with no deposit at all, using the discount itself as the effective contribution to the purchase.
When you come to remortgage, the calculation changes. Your existing equity is based on the current market value of the property minus the outstanding mortgage balance. If property values in your area have risen since you purchased — which is common, particularly for those who bought through Right to Buy several years ago — you may have significantly more equity than your original purchase price suggested. A property bought at a discounted price of £100,000 that is now worth £160,000, against which you owe £80,000, gives you equity of £80,000 and an LTV of 50% — putting you in a very strong remortgage position.
Lenders assess remortgage applications against the current open market value, not the original discounted purchase price. This means that Right to Buy homeowners who purchased with little or no deposit may find that they now have substantial equity simply through a combination of capital repayments and house price appreciation. This equity can be used to access better remortgage rates, and in some cases can be released to fund home improvements or other purposes.
It is worth commissioning a valuation — or at least a desktop estimate from your broker — before applying to remortgage, as knowing your current LTV position in advance helps you identify the most competitive products available. Moving into a lower LTV band, even by a small margin, can unlock meaningfully better rates.
