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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 who wish to be home owners 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, such as people living in social housing, people in the Armed Forces or veterans, and people living in private rented housing or with relatives. But it can 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, New Supply Shared Equity could be available to help them buy a replacement house in the same area. 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. 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
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. Registered social landlords must also recommend to applicants that they fully discuss the obligations that come with being an owner of a Shared Equity property - and the associated costs - with their solicitors.
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.
Standard styles of legal documentation
1.14 Annexe A contains the standard styles of legal documentation that registered social landlords must use when operating the New Supply Shared Equity scheme. These are:
- a Minute of Agreement ('Shared Equity Agreement') - this document sets out the basic arrangement between the owner and the Scottish Ministers;
- a Standard Security - this document sets out the legal right to enforce the Shared Equity Agreement by re-possessing the property if the owner is in default; and
- a Ranking Agreement - this document sets out the relationship between the owner, the Scottish Ministers and the primary lender who has a security over the property.
1.15 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. Registered social landlords must therefore ensure that this legal documentation is sent to the local Scottish Government Housing and Regeneration 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.
1.16 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.
Signature: Date:
1.17 Annexe A also contains a standard style of offer to sell and a draft disposition, 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.
1.18 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.
Licences and Office of Fair Trading ( OFT) permits
1.19 Registered social landlords must also 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 registered social landlords' own advisers. As from 1 October 2008, this will include a debt administration licence (Category G) which should be applied for now.
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