New Supply Shared Equity with Developers Scheme ('NSSE with Developers')
This note provides information for property professionals, such as estate agents and Independent Financial Advisers, on how NSSE with Developers will operate in 2012/13.
Introduction
NSSE with Developers operates like our existing New Supply Shared Equity scheme, except buyers purchase a home built by a developer rather than a Registered Social Landlord (RSL). Details of the developers and sites which are currently part of NSSE with Developers will be made available in due course.
Operation of NSSE with Developers
A buyer is expected pay for the majority share in the property - normally between 60 and 80 per cent of the price. The Scottish Government and the developer will each hold a security over the proportion of the home they have funded.
For example, if a buyer can afford a 68 per cent share of a property the Scottish Government and the developer's contribution will make up the remaining 32 per cent with them both taking a 16% share each. The buyer will have a 68 per cent stake in its value, whatever changes there are to the property's value over time. You should make your client aware that property prices may decrease as well as increase.
Buyers must pay for their share of the purchase price in the usual way, along with legal costs, and any other costs associated with the purchase such as registration dues and (if applicable) stamp duty. Buyers do not pay any form of rent on the property.
The NSSE with Developers Scheme is a 10 year shared equity scheme and within this period of time a buyer is expected to have:
- increased their equity stake up to 100 per cent; or
- sold their home; or
- made alternative financial arrangements which will enable them to buy a 100 per cent equity stake in the property.
The legal documentation for NSSE with Developers contains a Hardship Clause which may allow a shared equity owner an extension to their 10 year Agreement if they have not been able to tranched up to 100% within the 10 year period. Any decision to extend the period of time to allow a shared equity owner to repay the amount owed will be at the discretion of Scottish Ministers and the developer.
Who is NSSE with Developers for?
NSSE mainly aims to help first time buyers and people living in social housing, people in the Armed Forces, veterans who have left the armed forces within the past year and wish to buy a home, widows, widowers, and other partners of service personnel and other partners of service personnel whose partner has been killed in action within the past 12 months and people living in private rented housing or with relatives.
Eligibility Criteria for Extended Scheme in 2012-13
The property must be the buyer's only home. A buyer can purchase a property two 'bed spaces' more than the number of people in their household. For example, a couple would be eligible to buy a house with two double bedrooms, or a double and two single bedrooms.
As NSSE with Developers is aimed at low to moderate income households, all applications will be assessed by an RSL administering the scheme on behalf of the Scottish Government and the developer to see whether or not a person qualifies. To allow this to happen, a form of 'means testing' will be carried out. As housing costs vary so much from area to area there are no national criteria for this test. Instead, the RSL involved in the scheme will agree on a local set of criteria with the local authority in each area.
Applicants will need to demonstrate that they cannot buy a house suitable for their needs without help from the scheme.
The amount that a person contributes must be the maximum mortgage they can reasonably obtain - the RSL administering the scheme in their area will be able to provide information on the income multipliers it uses when considering the level of mortgage finance a person can raise - plus any personal contribution the person is able to make. The overall amount must be enough to pay for the stake a person takes in a property and cover all the costs of buying a home, such as survey and legal costs.
Deposits
Presently, all lenders who provide mortgages to NSSE with Developers buyers do require a deposit, although this is generally smaller than the level of deposit currently being required for non-shared equity mortgages.
The Scottish Government does not currently require buyers to have a deposit to access the scheme, but it does encourage them to provide one where they can.