The right-to-buy scheme was introduced in the 1980s

Legislation designed to give council house tenants a helping hand on to the property ladder is being exploited by companies and tenants in a bid to turn a quick profit, according to market research firm Datamonitor.

The report found that the practice of firms paying tenants to exercise their right to buy, only for the tenants to sell the property onto them, was partly responsible for an upsurge in public owned housing passing into private hands.

It also concluded that many tenants were losing out financially by doing business with these 'incentive' companies.

In addition, the report said that even if amendments are made to limit right-to-buy rules the market will continue to grow for the next five years.

Two-million sales

Right-to-buy allows local authority, housing association or housing action trust tenants to purchase their property, often at a significant discount.

Under the 1980 Housing Act, tenants exercising their right-to-buy could receive a discount of up to 50%.

Since 1980 two million homes have been sold to former tenants via right-to-buy.

But last month, under new rules, the maximum discount was reduced to �16,000 in some areas where council house stocks were dwindling.

Borrowing increase

Falling discounts have meant that tenants have had to borrow more to get a foot on the property ladder.

According to the Datamonitor report, gross advances in the right-to-buy mortgage market have grown at 12.4% a year on average for the last two years.

However, Datamonitor points out that, although debt is on the increase, the long term benefits of home ownership make exercising right-to-buy worthwhile for many.

"These households would have otherwise had nothing to show after years of paying rent and would also be more likely to be dependent upon the state in later life," said Alex Boorman, author of the report.

Middlemen miss-out

The government decided to cut discounts in response to growing concern that some firms were exploiting the right-to-buy process.

Some companies target eligible tenants encouraging them to exercise their right-to-buy and then sell the house on to them in return for a cash lump sum.

According to Datamonitor such firms are a key reason behind a recent upsurge in right-to-buy take up.

But tenants that choose to act as a middleman for former council property hungry firms may be missing out.

The report concludes that although the sums being paid by firms can be sizeable "it will be much smaller than the discount offered on the property, most of which will be retained by the incentive company".