How will the new government’s Right to Buy policy affect landlords?

In the run up to May’s General Election, one of the major factors which the main parties clashed on was the issue of Britain’s housing. With the Conservative Party winning not only re-election but also sole governance in 2015, it is their plans that will be debated in Parliament over the next five years.
So now that the dust has settled on an intense election campaign, how has the new government proposed to tackle Britain’s housing problem, and how will it affect landlords?
While other parties pledged to bring tighter regulations to the market such as rent control and letting agent fees – with Labour’s plan for a minimum three-year tenancy under a fixed rent of particular note – the Tories concentrated on the Right to Buy scheme.

Right to Buy

The scheme, which allows local councils to sell their stock of housing to their sitting tenants at a discount and with no down payment, has been a mainstay of Tory legislation since Margaret Thatcher came to power in 1979. When Labour returned to power in 1997 under Tony Blair, they reduced the available discount in areas where social housing was at a premium .
With the Conservatives’ return to power, they have pledged to make a further 1.3 million homes available to their tenants for purchase (http://www.jrf.org.uk/sites/files/jrf/HRD28.pdf).
As part of these plans, local councils around the UK will each be required to try and sell their most valuable 200,000 homes . The money raised will go towards building 400,000 new homes on brownfield land – another pre-election pledge made in order to try and ease Britain’s housing crisis.
The discount, capped at around £100,000 in London and £77,000 for homes in the rest of England, depends on how long a sitting tenant has been in their property. In total, the discounts are expected to begin after three years of an occupancy at 35% for a house (50% for a flat) and rise by 1% for every year that a tenant has been in their property (2% per year for a flat) .

Pros and cons

Comments made by the Institute for Fiscal Studies have highlighted both the positives and negatives of the Right to Buy scheme extension for the British economy .
While the sales could arguably lead to a fast-tracked social housing construction scheme, there are concerns that the reduction in availability of rental properties in more expensive areas could lead to a greater divide between richer and poorer areas in the UK.
Landlords are concerned that selling on so much property at a loss – no down payments are needed and the discounts are steep – could cause widespread defaults on borrowing by not-for-profit housing associations.
And with such high demand for social housing, the IFS notes that “there is a risk that these policies will lead to a further depletion of the social housing stock – something the proposal explicitly seeks to avoid”.
Extending the Right to Buy to housing associations gives sitting tenants the choice to decide whether or not they can pursue what Prime Minister David Cameron calls “a property-owning democracy”, but has serious ramifications for those desperately in need of social housing.