Scottish Government

Section one: The Open Market Shared Equity Pilot scheme

An introduction

1.1 The Open Market Shared Equity Pilot scheme is part of the range of assistance from the Scottish Government under LIFT, the Low-cost Initiative for First-Time Buyers. It aims to help people on low incomes who wish to be home owners but whose financial resources are insufficient to meet their needs because of local housing market prices. It allows people to buy homes that are for sale on the open market and is operated by the following registered social landlords in the administrative areas noted below:

1.2 The methodology for providing Open Market Shared Equity is set out in these procedures. In summary, grant agreements are entered into with registered social landlords to enable them to act for the Scottish Ministers in the funding of part of the price of a property. In return, owners enter into Shared Equity Agreements with the Scottish Ministers which are secured by an appropriately ranked standard security.

1.3 Registered social landlords are therefore acting for the Scottish Ministers and, as such, must follow these administrative procedures and have due regard to the interests of the Scottish Ministers.

1.4 A central conveyancing contract has been established under the Scottish Government Framework Agreement for the Provision of Legal Services for the registered social landlords operating the Open Market Shared Equity Pilot scheme. Harper Macleod have been appointed to carry out this work. There is therefore no requirement for registered social landlords to appoint their own solicitors.

Target groups to be housed

1.5 Target groups for the Open Market Shared Equity Pilot Scheme must fit the objective of supporting households on low incomes who cannot meet their housing needs because of market conditions in the area where they need to live. The Open Market Shared Equity Pilot Scheme aims mainly to help first-time buyers and must be promoted actively to people living in social housing, people in the Armed Forces or veterans, Widows, widowers and other partners of service personnel killed in action for up to one year after their partner has been killed, and people living in private rented housing or with relatives as these groups have priority access to the scheme. The quota of local authority and registered social landlord tenants who will be targeted for assistance in each local authority area will be determined by the local authorities themselves using information contained within their local housing strategies, although flexibility should be applied where demand from social rented tenants is unlikely to allow the quota to be met.

1.6 The Open Market Shared Equity Pilot Scheme can however also be used to help other groups of people. For example, it may be able to help people who are looking for a new home after a significant change in their household circumstances, or people who have a disability and own a house which does not suit their needs. Also, in a small number of locations where owner occupiers are affected by demolition plans, the Open Market Shared Equity Pilot Scheme could be available to help them buy a replacement house in the same area ¹.

1.7 Registered social landlords must make sure that duties under the Race Equality Duty and the Disability Equality Duty - Statutory Code of Practice (Scotland) are met when targeting the Open Market Shared Equity Pilot Scheme.

1.8 Non-United Kingdom nationals are eligible for assistance under the Open Market Shared Equity Pilot Scheme so long as they (i) have a right to permanent residency in the United Kingdom (ii) do not have a home elsewhere and (iii) meet any other eligibility criteria set for the scheme.

Equity stakes

1.9 Applicants who purchase property through the Open Market Shared Equity Pilot Scheme generally need to take an equity stake of between 60 and 80 per cent of the value of a property, as set by an independent professionally qualified valuer the minimum equity stake to as low as 51 per cent. This is likely to apply where a housing market is particularly pressured or where people with particular housing needs have identifiable additional housing costs (see Annexe D, paragraph 12). In all cases, the maximum initial equity stake that any owner can take is 80 per cent of the value of a property.

1.10 The level of equity stake that the Scottish Ministers will have in a property depends on the level of equity stake taken by an owner. For example, if an owner has an equity stake amounting to 60 per cent of the value of a property, the Scottish Ministers will have a 40 per cent equity stake in the value of that property.

1.11 Applicants to the Open Market Shared Equity Pilot scheme must be means tested in order to establish eligibility.

The responsibilities associated with buying a home

1.12 An applicant will be responsible for their own legal and, if necessary, valuation costs incurred in relation to the purchase, and will be responsible for all tax and registration costs. Unlike shared ownership, an owner will have full title to the property and will not make occupancy payments.

1.13 An owner is expected to occupy the property as their only residence and they will be responsible for keeping the property in a good and habitable state of repair. As well as making mortgage repayments and paying tax to their local authority, an owner must also insure their property and ensure that the Scottish Ministers' interest is endorsed on the insurance policy. An owner is responsible for all maintenance, repair and insurance costs and not just a percentage, and if the property has common and shared areas they will be responsible for paying any common maintenance or service charges.

1.14 An owner is not allowed to let or sub-let the property or any part of it without the Scottish Ministers' prior written consent. (As noted in section 1.3 above, registered social landlords will act for the Scottish Ministers in this regard.) If consent is granted, this will be time-limited if the property is to be let given that an owner is expected to occupy the property as their sole residence. This allows an owner to retain the property, for example when working away from home, without compromising the principles of the scheme. In either case, no rental proceeds will be due to the Scottish Ministers.

1.15 Registered social landlords should make sure that applicants are made aware of these obligations (and the associated financial responsibilities) when they apply to the Open Market Shared Equity Pilot scheme. Registered social landlords must also recommend to applicants that, in so far as they have not already done so they appoint solicitors and fully discuss with them the obligations that come with being an owner of a Shared Equity property - and the associated costs - as well as the full terms of the Shared Equity documentation. Reference in this regard may be made to the Application Form - Part 8 Appointing a Solicitor.

1.16 The standard styles of legal documentation are set out in Annexe A.

The golden share

1.17 In certain circumstances, such as in areas where there is a highly constrained supply of affordable housing and little or no scope for this supply to be increased, the Scottish Ministers may be allowed to retain a 20 per cent equity stake in a property, known as a 'golden share'. The golden share will only be used in areas where there are fewest opportunities for supply to be increased - in particular some rural areas. The Scottish Government will agree any areas for operation of the golden share with each local authority, and will communicate these to registered social landlords. The retention of a golden share is secured through the Shared Equity Agreement as provided for in Annexe A.

1.18 Where applicable, registered social landlords must (i) explain to applicants what it means to have a 'golden share' over a property and (ii) ensure that individual passport letters record where a golden share will apply (see Annexe E).

Offer of grant

1.19 Registered social landlords administering the Open Market Shared Equity Pilot scheme will receive a grant offer letter from the Scottish Ministers, in the style set out in Annexe B. Each offer must be accepted unconditionally.

Licences and Office of Fair Trading ( OFT) permits

1.20 Registered social landlords must ensure that they have all appropriate licences and permits from the OFT. This will include application to the OFT for all relevant categories of credit licence and discussions should take place with the OFT at an early stage as well as with Harper Macleod.

Publicity

1.21 Registered social landlords should ensure that any publicity material they produce for the Open Market Shared Equity Pilot scheme meets all statutory requirements and is discussed in advance with the trading standards department of the relevant local authority. All publicity material produced by registered social landlords should also make clear that the scheme is funded by the Scottish Government as part of LIFT.