Consultation on the use of Right to Buy Receipts: the MHCLG response

Posted: 22nd March 2021 Bradley Tollon, Senior Development Consultant

After two and a half years, the government’s long awaited response [1] to the consultation on councils’ use of Right to Buy receipts has been published and it is worth the wait.

The consultation, published in August 2018, looked for feedback on the rules governing local authorities use of Right to Buy receipts and how they could be changed to help increase the delivery of new homes. Generally, the current rules are considered restrictive and the consultation considered the following key areas and how they could be addressed to help ensure greater delivery of new housing.

Extend the timeline for spending Right to Buy receipts

Currently, local authorities have 3 years to spend Right to Buy receipts on the delivery of housing prior to the monies having to be returned to MHCLG. It is generally thought that the 3-year restriction does not allow councils enough time to effectively plan a development programme and does not reflect the length of the development life-cycle.

18% of respondents to the consultation wanted to see the time limit removed completely, however the government felt this will not encourage the early delivery of new housing. Nevertheless, government did acknowledge the difficulties of a 3-year timeline for spend of Right to Buy monies.

Proposed Amendment: That the time limit for expenditure of receipts is increased from 3 to 5 years.

In addition, to make expenditure tracking easier for both the department and local authorities, the process for pooling receipts will move to an annual rather than quarterly process.

Increase the cap on expenditure per replacement unit

Under the existing rules, councils can only fund 30% of the total cost of a replacement home through the use of Right to Buy receipts. This is generally considered inadequate to deliver new build Social Rent housing as the net rental stream is insufficient to finance the remaining 70% of development costs.

Of those who responded, 56% stated that they would like to see the cap either raised to 50% for all builds and acquisitions or removed altogether. In its response, government stated that it would not remove the cap as it remained an important principle that local authorities should use the receipts to leverage further funding to ensure they provide best value for money and result in additional housing, not just replacement housing. It also considers a 50% cap to be too high and not value for money.

Proposed Amendment: That the cap on expenditure per replacement unit is raised to 40% from 30%.

Use of receipts for acquisition of existing properties

It is recognised that currently 48% of Right to Buy replacement homes are the purchase of existing properties – not new build housing. This is mainly because local authorities are trying to ensure Right to Buy monies are spent and not returned to government, The government notes that this can be both an expensive route for councils to deliver new social housing and does not add to the overall supply.

Government is keen to ensure that the receipts are delivering best value for money and adding to the overall supply of housing.

Proposed Amendment: That a cap on the percentage of acquisitions making up the programme of spend of Right to Buy monies is introduced.

Government however understands that it will take time for local authorities to prepare for the introduction of this cap and to ramp up their build programmes and will therefore apply a phased approach to the introduction of the cap as per the below table.

Flexibility over tenure for replacement homes

Rules currently restrict local authorities to spending Right to Buy monies on the delivery of sub-market rented housing. Respondents to the consultation argued that monies should be able to be used to create mixed tenure communities by funding other tenures such as Shared Ownership.

Proposed Amendment: That receipts be used to fund both sub-market rental housing and intermediate housing such as Shared Ownership and First Homes.

In addition to the above, other changes were considered such as allowing the transfer of receipts to a housing company or Arm’s-Length Management Organisation (ALMO) and the temporary suspension of interest payments. The response considers these options, but in light of the other changes, decides not to not take forward the proposals.

The response states that the government will amend the agreements made with local authorities under Section 11(6) of the Local Government Act 2003 to reflect the changes above and expects them to come into force from April 2021.

Altair Consultancy and Advisory Services Ltd helps local authorities realise their development ambitions by providing a range of services to assist with strategic decision making and delivery of new homes, including options appraisals on existing assets, development strategies and development management. For more information on how Altair could help you please get in touch with Bradley Tollon or Matt Carroll.

[1] Please click here.

Latest News

See all news