OPEN MARKET SHARED EQUITY SCHEME
UPDATE ON THE SCHEME FOR PROPERTY PROFESSIONALS
Introduction
The Open Market Shared Equity Scheme aims to help households on low to moderate incomes access homeownership where it is affordable for them. The scheme allows people to buy homes that are for sale on the open market. For the remainder of 2010/11 (that is up to the end of March 2011), the scheme is currently accepting application forms from social renters, people in the armed forces, veterans, and widows, widowers and other partners of service personnel.
This note provides information for property professionals, such as estate agents and Independent Financial Advisers, on how the scheme will operate for the remainder of the financial year 2010/11 and for financial year 2011/12 (commencing 1 April 2011).
Who can apply to the scheme?
The following groups of people can currently apply to the scheme:
- Social renters - people who are currently a tenant of either the Council or an RSL;
- Serving members of 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 killed in action for up to one year after their partner has been killed.
As the scheme is open only to social renters and people in the armed forces or veterans in all other areas, information on other schemes to help first time buyers on low to moderate incomes access home ownership is available.
Operation of OMSE in 2011/12
For 2011/12, the scheme will again be open to the same priority groups. Additionally, the scheme will be opened up to help all first time buyers in certain defined rural areas. These rural areas have been defined using the Scottish Government 6-Fold Urban Rural Classification and the local authorities who, overall, can be classed as predominantly Remote Rural areas are Shetland Islands, Orkney Islands, Highland, Eilean Siar, Moray, Perth and Kinross, Aberdeenshire, East Lothian, Scottish Borders, Dumfries and Galloway, Argyll & Bute, South Ayrshire, and Angus. The scheme will therefore accept applications from all first-time buyers in these local authority areas.
The 2011/12 OMSE scheme will operate within an allocated budget of around £5 million and once the available funding is allocated for the financial year 2011/12 no further passports will be issued.
Eligibility Criteria for the Open Market Shared Equity Scheme
The minimum equity stake that buyers must take in a property is 60% with the maximum equity stake being 90%.
If your client is unable to purchase a 60% minimum equity stake, and should they wish to obtain further information about other options available under LIFT, they will find this on our website.
There are no fixed maximum income levels below which people are eligible, but eligibility is based on the level of mortgage buyers can secure and afford. If the buyer could afford a mortgage for more than 90% of the maximum price ceiling of the size of property, they would be looking for then they will not be eligible for the scheme. Details of current price ceilings are available on the Scottish Government (SG) website. The level of mortgage offered by lenders will depend on expenditure commitments as well as income, but, as a rule of thumb, RSLs will expect single buyers to borrow 3 times their household income and couples to borrow 2.5 times their joint income. Buyers can borrow more than that if they wish, but they must demonstrate that they have sought advice from an Independent Financial Adviser to be comfortable that they can afford the potential costs over the long term.
It is important to emphasise to buyers that the interest free loan provided from the Scottish Government is for a 19 year period. Buyers are expected to repay their loan within 19 years, either when they sell their property or, if they do not sell within 19 years, by borrowing additional funds.
Threshold prices
There are limits set on the price of homes that can be bought under the open market scheme - these are known as threshold prices. These limits vary according to house prices in different parts of Scotland, called threshold price areas, and are reviewed regularly. You can find out these limits and details of the registered social landlords that operate the scheme in each of the scheme's eight administrative areas through the links below. You can see which threshold price area covers the region in which you wish to buy on a map.
Deposits
Presently, almost all lenders who provide mortgages to Open Market Shared Equity Scheme buyers do require a modest 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 buyers to provide one where they can.