Right to Buy: Service Charge Loans
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Contents
Introduction
What service charges may qualify for a loan?
How much am I entitled to borrow?
What will be the terms of the loan?
How do I apply?
What if I intend to dispute the charges?
Help and advice
Introduction
If you are the leaseholder of a flat bought under the right to buy you may have the right to a loan in respect of service charges for repairs carried out by your landlord.
It does not matter whether you are the original purchaser of your flat under the right to buy, but your landlord must be the housing authority which granted the lease or another housing authority. ('Housing authority' includes registered housing associations other than co-operative housing associations, and unregistered co-operative housing associations.)
You do not have the right to a loan if you or a predecessor bought your flat under the preserved right to buy (which arises when housing subject to secure tenancies is transferred to a different landlord and the tenancies cease to be secure tenancies as a result).
Generally you exercise the right to a loan against your landlord: the loan takes the form of a right to leave the service charge outstanding for a certain period while paying interest on it. If, however, your landlord is a housing association, the Housing Corporation (or Housing for Wales for leaseholders in Wales) will make a loan to enable you to pay the service charge.
What service charges may qualify for a loan?
You can only have the right to a loan in respect of charges for repairs carried out by the landlord to the flat, the building of which it forms part or any other building or land, where:
- payment is demanded on or after 17 August 1992; and
- the charges are payable in the ten years beginning on the day the lease was granted (or, if the lease provides for charges to be payable by reference to a specified annual period, before the end of the tenth complete annual period beginning after the grant of the lease).
How much am I entitled to borrow?
You do not have the right to a loan until the service charges payable for any purpose, not just repairs, in one accounting period total £1,500 or more. (Service charges in separate demands may be added together for this purpose.)
The accounting period is the annual period by reference to which charges are payable under the lease. If no period is specified, it will be the period of twelve months beginning with the grant of the lease and the subsequent twelve month periods beginning after that.
You may borrow the amount by which the service charges for the accounting period exceed £1,500, but you may only borrow in respect of charges for repairs.
The loan must be for more than £500. You may not borrow more than £20,000 (taking earlier outstanding loans into account).
All the figures mentioned above will be adjusted for inflation by reference to the retail prices index for January 1993 and each subsequent January.
What will be the terms of the loan?
You will have to repay the loan by equal instalments of principal and interest over three years for loans under £1,500, five years for loans which are for £1,500 or more but less than £5,000, and ten years where the loan is for £5,000 or more. You can choose to pay over a shorter period if you wish.
If your landlord is a local authority you will have to pay interest at the local authority mortgage interest rate. Otherwise interest will be charged at such reasonable rate as the lender may determine. The lender can also charge up to £100 to cover its administrative expenses.
The loan will be secured by a mortgage of the flat.
How do I apply?
Your landlord must tell you whether or not you will be eligible for a loan when it sends you a demand for service charges. You must then respond in writing within six weeks.
What if I intend to dispute the charges?
You can claim a loan while making it clear that you do not accept that the charges are right.
Help and advice
If you have any queries you should approach your landlord for advice first. The Office of the Deputy Prime Minister (or The Welsh Assembly Government for tenants in Wales) may also be able to help or, for housing association tenants only, the Housing Corporation or Housing for Wales. There is a list of the addresses and telephone numbers of these bodies on the back of the booklet Your right to buy your home.
Information on how and where you can obtain this booklet and other publications produced by the Office of the Deputy Prime Minister is available from the ODPM publications home page.
Product Code: 96 HC 250
Reprinted: June 2000