Section one: The New Supply Shared Equity scheme
An introduction
1.1 The New Supply Shared Equity 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 to access home ownership - where this is sustainable for them - but whose financial resources are insufficient to meet their needs because of local housing market prices.
1.2 The methodology for providing New Supply Shared Equity is set out in these procedures. In summary, grants are provided to registered social landlords to enable them to develop or purchase properties which are sold at a proportion of market value. In return, owners enter into shared equity agreements with the Scottish Ministers which are secured by an appropriately ranked standard security.
1.3 Accordingly, registered social landlords are - in certain cases - acting as principals (in relation to the procuring of developments) and in other cases (for example in all aspects of the Shared Equity arrangements with a purchaser) acting as agents for the Scottish Ministers. In all circumstances, however, registered social landlords must follow these administrative procedures and have due regard to the interests of the Scottish Ministers. They must also ensure that all duties of care owed to them by their advisors and contractors (including valuers) are properly extended to the Scottish Ministers.
1.4 The New Supply Shared Equity scheme mainly aims 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. Practical advice to assist with the local targeting of the scheme, and further information on some of the target groups to be housed, can be found in section 2.
1.5 People buying a New Supply Shared Equity property from a registered social landlord must generally take an equity stake of between 60 and 80 per cent of the market value of the property, as set by the District Valuer. The grant provider may however agree to reduce the minimum equity stake to 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 section 2.33).
1.6 The grant provider may waive the minimum equity stake requirement for existing owner occupiers whose homes are scheduled for demolition. They would be expected to invest, as a minimum, the value of their existing property in an equity stake of the new property. If there is any likelihood of the equity stake being funded purely from the value of the existing property with no lending from an external source it is important that the relevant Scottish Government Regional Office is advised at as early a stage as possible. In all cases, the maximum initial equity stake that any purchaser can take is 80 per cent of the market value of a property.
1.7 The level of equity stake that the Scottish Ministers will have in a property depends on the level of equity stake taken by a purchaser. For example, if a purchaser has an equity stake amounting to 60 per cent of the market value of a property, the Scottish Ministers would have a 40 per cent equity stake in the market value of that property.
1.8 With the exception of existing owner occupiers whose homes are scheduled for demolition, people buying a New Supply Shared Equity property must be means tested in order to establish eligibility (see section 2).
The responsibilities associated with buying a home under the scheme
1.9 An applicant will be responsible for their own legal and valuation costs incurred in relation to the purchase, and for all tax and registration costs. Unlike shared ownership, an owner will have full title to the property and will not make occupancy payments.
1.10 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.
1.11 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.
1.12 Registered social landlords should make sure that applicants are made aware of these obligations (and the associated financial responsibilities) when they apply for a New Supply Shared Equity property and recommend that they fully discuss these and all other costs and restrictions - whether arising from the shared equity documentation, the primary lender's documentation or otherwise - with their financial and legal advisers.
Property disposals
1.13 Section 66 of the Housing (Scotland) Act 2001 states that registered social landlords must obtain written consent from the Scottish Ministers for certain disposals of land or property. New Supply Shared Equity properties are covered however by the General Consent issued under CSGN 2005/05 - A guide to Section 66 of the Housing (Scotland) Act 2001 (Appendix 2, paragraph 3). As a result, disposals under the New Supply Shared Equity scheme do not require the specific written permission of the Scottish Ministers.
Processing legal documentation - projects approved after 12 May 2009
1.14 Annexe A contains the standard styles of legal documentation and correspondence to be used when operating the New Supply Shared Equity scheme. A central conveyancing contract has been established under the Scottish Government Framework Agreement for the provision of legal services for the New Supply Shared Equity scheme for all projects entered into after 12 May 2009. Harper Macleod have been appointed to carry out this work and they will liaise closely with the registered social landlord and their solicitors in terms of the draft correspondence.
1.15 As per HIGN 2009/05 the New Supply Shared Equity allowance per unit has been reduced by the nominal sum of £100 from the published figure of £1,659 to £1,559 to reflect the central conveyancing arrangement now in place.
1.16 In essence Harper Macleod will deal with the shared equity agreement, standard security and ranking agreement between the Scottish Ministers, the purchaser and the primary lender. Everything else including acquisition, title examination, deed of conditions, disposition of individual houses, searches etc will be dealt with by the registered social landlord's own solicitor.
1.17 This will ensure that lines of responsibility to both the registered social landlord and the Scottish Ministers are clear and avoids any duplication of title work or additional costs.
1.18 Annexe A also contains a standard style of offer to sell, draft disposition and draft deed of conditions which solicitors should complete subject to any amendments and all additions which they and the registered social landlord deem necessary and/ or desirable in accordance with good market practice and the nature of the development. This will include inserting plan(s) and conveyancing descriptions for the Disposition and Deed of Conditions in order to ensure uniformity across the site as well as providing the information requested in the correspondence ("correspondence") set out in Annexe 1.
1.19 Once agreed, the registered social landlord's solicitors should make a formal offer to sell to the solicitors acting for the purchaser in accordance with normal Scottish conveyancing practice.
1.20 If accepted the registered social landlord's solicitors will progress the sale of the plot in the normal manner in accordance with their duty of care whilst Harper Macleod will deal with the shared equity documentation in accordance with the correspondence shown in Annexe A.
Processing legal documentation - projects approved before 12 May 2009
1.21 Where the project was approved before 12 May 2009 solicitors acting for the registered social landlord shall continue to act for the Scottish Ministers in accordance with this section and the terms of the relevant Grant Agreement signed at the time the project was entered into. (The New Supply Shared Equity published allowance figure of £1,659 applies to projects approved before 12 May 2009.)
1.22 Authorised officials of the Scottish Government Housing and Regeneration Directorate must sign EVERY Minute of Agreement and Ranking Agreement on behalf of the Scottish Ministers their contact details can be found in section eight2.
1.23 Where the project is approved before 12 May 2009 registered social landlords must therefore ensure that this legal documentation is sent to the relevant Scottish Government Regional Office for signing before completing a transaction. Solicitors acting for registered social landlords must build in sufficient time to allow for the documentation to be signed and returned when agreeing settlement dates.
The following standard certification must accompany the legal documentation when it is submitted for signing:
I/ We enclose for signature the Minute of Agreement and Ranking
Agreement relating to the following transaction:
The RESOURCE system reference number:
Original scheme name:
Property address:
Date of settlement:
I/ We certify on behalf of [insert name of registered social landlord] that the legal documentation presented for signature is in strict accordance with current guidance for Scottish Government Shared Equity schemes.
1.23 The solicitors should also complete the standard style of offer to sell and draft disposition and any Deed of Conditions and make a formal offer to sell to the solicitors acting for the purchaser in accordance with Clauses 1.17 and 1.18. If accepted the registered social landlord's solicitors will progress the sale of the plot and the completion of the shared equity documentation in the normal manner in accordance with their duty of care.
1.24 Registered social landlords must also ensure that they have all appropriate licences and permits from the Office of Fair Trading ( OFT). This will include application to the OFT for all relevant categories of credit licences and if these have not already been obtained discussions should take place with the OFT at an early stage. These categories should include a Category C (brokerage), Category F (debt collecting) and Category G (debt administration).