Help to Buy Affordable New Build 2018: administrative procedures for agents

Administrative Procedures for Agents administering the Help to Buy (Scotland) Affordable New Build Scheme

General Information on the Help to Buy (Scotland): Affordable Home Ownership Scheme

1. The Help to Buy (Scotland) Affordable New Build Scheme is a Scottish Government scheme to help people to buy an affordable new build home from a participating home builder.

2. The scheme comprises two elements - the main Help to Buy (Scotland) Affordable New Build Scheme and the Help to Buy (Scotland) Smaller Developers Scheme.

3. Buyers must be able to fund at least 85% of the purchase price of a selected new build home (up to a maximum threshold price, currently £200,000) through a combination of a conventional mortgage and a minimum 5% deposit (if one is required by their lender). In the case of applicants aged 60 or over there is no requirement for a mortgage. These buyers can fund their share of the purchase price from a combination of the funds received from the sale of any existing property and savings.

Role of the Administering Agent managing and administering the Help to Buy (Scotland) Affordable New Build Scheme

4. The Administering Agent will manage and assess applications to the scheme from prospective buyers. The following documentation to assist Administering Agents to manage and assess applications to the scheme is provided in the Annexes to this document.

Annex A - Application Form
Annex B - Authority to Proceed Letter
Annex C - Standing Instructions to Solicitors
Annex D - Sales Log Form
Annex E - Worked Examples

5. Administering Agents are acting for Scottish Ministers in administering the Help to Buy (Scotland) Affordable New Build Scheme and so must follow these administrative procedures and have due regard to the interests of the Scottish Ministers.

6. Help to Buy (Scotland) Affordable New Build Scheme aims to help all first-time buyers and second steppers who wish to move home to buy an affordable new build home up to a maximum threshold price as detailed below:-

• For financial years 2018/19, 2019/20 and 2020/21 for purchases which complete on or before 31^st March 2021, the threshold price is £200,000

7. Existing homeowners must sell their home before they purchase a new home under the scheme. People buying a home under the scheme are expected to occupy the property as their sole and only residence. The scheme is not available to assist buy-to-let investors and upon completion it must be the only home owned by the buyer.

8. Existing homeowners may not part-exchange their home and purchase a new home under the scheme. A buyer of a Help to Buy (Scotland) Affordable New Build Scheme home must purchase a minimum of 85% of the purchase price of a home. A buyer may have to provide a 5% deposit to their lender. An applicant’s mortgage and any deposit combined must cover a combined minimum of 85% of the total purchase price. Applicants to the scheme who are aged 60 or over are not required to take a mortgage. For this applicant group they can contribute proceeds from the sale of their current property/previous home plus savings . –If these applicants are able to afford the purchase price of a property without assistance they will not be eligible for support through the scheme.

9. Joint applications (without the requirement for a mortgage) will be eligible from couples where only one of the applicants is aged 60 or over. Joint applications with an applicant aged 60 or over and their offspring under the age of 60 will also be eligible, without the requirement for a mortgage, if the applicants can demonstrate that the offspring has a disability that affects their housing needs or ability to sustain a sole occupancy.

10. Where applicants to the scheme are aged 60 or over and are applying to purchase a property without a mortgage they must demonstrate a housing need which includes at least one of the following:

• Under-occupation – the applicant is living in property which is too large and needs to downsize
• Their current property is no longer suitable to meet their needs – (e.g. they can no longer manage stairs).
• Support – the applicant needs to move closer to family or friends that provide care and support
• Living in private rented accommodation

*Please note this list is not exhaustive and other circumstances can be considered as evidence of housing need.

11. Applicants aged 60 or over applying to purchase a property without a mortgage will also be required to provide proof of the sales price achieved from the sale of their previous home or the offer accepted to purchase their current home and the free proceeds received or expected to be received from the sale of that property following repayment of any existing mortgage, as part of the assessment process. Reasonable expenses such as legal, estate agency fees and removal costs will be regarded as eligible deductions from the sales proceeds prior to determining the equity stake. The Standing Instructions to Solicitors (Annex C) make clear that, where an applicant aged 60 or over is selling their existing house and intends to apply the free sale proceeds towards the purchase of a house under the Help to Buy (Scotland) Affordable New Build and Small Developers Schemes, the applicant's solicitor is expected to confirm the amounts involved, within the Solicitor's Form 1. Where applicants are purchasing without a mortgage a valuation of the property will still be required.

12. Applicants who are in employment are required to provide payslips for the last 3 months with their application and administering agents should use this information to check that it is the same information provided in the application form. If an applicant is paid weekly then the previous 12 weeks’ payslips will be acceptable.

13. All applicants to the scheme must complete an application form to apply for assistance under the scheme and the information provided will be assessed by the Administering Agent to determine if the applicant’s application is eligible or not. Applicants should ensure that a full reservation form is attached to applications.

14. Administering Agents must provide each eligible buyer with a copy of the Help to Buy (Scotland) Affordable New Build Scheme After Sales brochure at settlement of the purchase of their home.

Home builders approved to participate in the scheme

15. The Scottish Government will provide each Administering Agent with a list of home builders who have been approved to participate in the scheme. If a home builder has not been approved to participate in the scheme, no assistance will be provided under the scheme.

16. Administering agents will be provided with a list of the home builders that have registered to participate in the main Help to Buy (Scotland) Affordable New Build Scheme. All other home builders will participate in the Help to Buy (Scotland) Smaller Developers Scheme.

17. All home builders will be required to enter into a Participation Agreement with the Scottish Government if their registration is successful.

18. All eligible properties must be covered by an industry-recognised warranty, such as NHBC or equivalent and home builders are expected to have adopted the Consumer Code for Home Builders. As an exception to this requirement, a professional consultant’s certificate may be acceptable to Scottish Ministers, but only if it will be acceptable to the eligible buyer’s primary lender or at the discretion of Scottish Ministers where there is no primary lender – more detail on this is contained in the Standing Instructions to Solicitors (Annex C).

19. Homes which have been previously occupied either by an owner occupier or a tenant before sale may not be purchased with assistance under the scheme.

20. Homes built by home builders to fulfil affordable housing obligations pursuant to Section 75 Agreements (under the Town and Country Planning (Scotland) Act 1997) are not eligible for assistance under the scheme. Homes sold under the scheme must be market sale homes.

Establish affordability and conduct means testing

21. This section sets out the procedures that Administering Agents must follow when assessing, approving and paying grant under the scheme.

22. If the Administering Agent receives an incomplete Application Form (set out in Annex A), from an applicant, they must ask the applicant to provide any missing information before the application can be assessed. Applicants should be aware that their application cannot be assessed until they provide all necessary information.

23. Administering Agents must undertake an assessment of individual household circumstances. This information will be obtained from the Application Form that applicants will complete as well as (if applicable) payslips for the last 3 months that will also be sent.

24. In Part 2 of the application form within the ‘Additional Income’ section, if there is a spouse or partner co-habiting with the applicant who contributes towards the household income, the applicant is required to provide this information which will be taken into account in the assessment process.

25. An applicant must purchase the maximum amount of equity that they can reasonably afford, taking account of other financial commitments and the associated costs of home ownership.

26. On the Application Form, applicants will provide details of all sources of finance. This information is to be used by the Administering Agent to determine if the applicant is able to contribute a minimum of 85% of the purchase price of the property and to calculate what equity share Scottish Ministers will contribute.

Income Assessment

27. The information in the application form and the three recent pay slips provided by applicants will be used by the Administering Agent to determine the anticipated value of mortgage finance.

28. The Administering Agent will apply a ‘rule of thumb’ for the maximum mortgage for an applicant in employment as follows:

• individual application – individual salary x 4.5 = estimated maximum; or
• joint application – joint salary x 3.5 = estimated maximum.

In the event that it is a joint application but only one applicant works then the individual application rule would apply.

29. Administering Agents should note that the ‘rule of thumb’ will not be appropriate in the case of applicants who are aged 60 or over and are not taking a mortgage. For self-employed cases, the most recent set of accounts should be provided unless otherwise advised by the lender and a Decision in Principle would be acceptable for assessment purposes. Normally lenders will require sight of a minimum number of years’ accounts before providing a mortgage quote although some allow self-employed people to self-certify their income.

30. Where an applicant with particular needs will be using their benefit entitlement to support a mortgage, the standard multiplier of 4.5 for individuals or 3.5 for joint will be an inappropriate measure. The assessment should therefore be conducted using knowledge of the benefit entitlements of disabled people.

31. Where applicants are aged 60 or over and apply for assistance without the use of a mortgage evidence of the sale price achieved from a previous house sale or the formal offer accepted will be required as part of the assessment process, along with evidence of any amount required to repay in full any existing mortgage. Reasonable expenses such as legal, estate agency fees and removal costs will be regarded as eligible deductions from the sales proceeds prior to determining the equity stake.

32. Like all applicants to the scheme, we expect buyers aged 60 or over, purchasing without a mortgage, to contribute their savings to the purchase. However, where the applicant provides evidence that they need to keep funds aside to meet additional living costs (e.g. the cost of employing a carer, paying for a spouse in care etc), the applicant may not need to meet the requirement to use their full savings towards the purchase of a property.

33. The Administering Agent will be required to check that the applicant’s monthly costs are no more than 45% of their net disposable income. This does not apply for applicants aged 60 or over who are buying without a mortgage.

34. The Scottish Government will provide the Administering Agent with a calculator to be used for assessing affordability and sustainability of purchasers. Once the Administering Agent is satisfied that the following apply:-

• the applicant can afford to pay a minimum of 85% of the purchase price of the property (taking into account existing debts);
• that the Administering Agent has calculated the maximum amount of equity that the applicant can reasonably afford, taking account of other financial commitments;
• and that the applicant’s monthly costs are no more than 45% of their net disposable income This does not apply for applicants aged 60 or over who are buying without a mortgage.

35. The Administering Agent can proceed with issuing an Authority to Proceed Letter to the applicant, the applicant’s IFA, the home builder and Scottish Government solicitors (Harper Macleod). When the applicant has provided information on their solicitor, the Administering Agent should send the solicitors a copy of the Authority to Proceed along with a set of Standing Instructions (set out in Annex C). These standing instructions explain to the purchaser’s solicitor what they must do to facilitate the transaction. The Scottish Ministers will be advised on each transaction by the Scottish Government solicitors, who will be responsible for preparation of the Shared Equity Agreement, the Standard Security in favour of Scottish Ministers and the Ranking Agreement. However, to avoid unnecessary duplication of legal work, the applicant’s solicitor will be asked to carry out all necessary title and property due diligence on the Scottish Ministers’ behalf. The Standing Instructions set out in Annex C therefore make clear to the applicant’s solicitor what is expected of them, including them owing a duty of care to Scottish Ministers and submitting a Solicitor’s Form 1 and a certificate of title in the required terms. Settlement of a transaction must not take place unless the Solicitor’s Form 1 and the certificate of title have been received by the Administering Agent and they are in acceptable terms and Scottish Government’s solicitors have confirmed to the Administering Agent that either the necessary shared equity documentation is signed and in place or that acceptable arrangements have been put in place between Scottish Government’s solicitors and the applicant’s solicitor for delivery of the documentation.

36. Once the Authority to Proceed Letter has been issued where the applicant is taking out a mortgage, the applicant will then inform their independent financial advisor (IFA), who will prepare a full mortgage application for submission in line with the details on the Authority to Proceed Letter.

37. Agents will be asked in the weekly report to provide information on fallen/cancelled/withdrawn applications and should be aware that no Authority to Proceeds should be recycled under any circumstances.

38. If an eligible buyer has a Help to Buy: ISA (which is a UK Government scheme) they may be able to use the proceeds of the ISA as a deposit towards the purchase price of a home. The eligible buyer’s solicitor is required to register with the UK Government in accordance with the rules of the Help to Buy: ISA scheme before they can apply for the release of funds on behalf of their client. Further information on these matters is provided in the Standing Instructions, and more information on the Help to Buy: ISA scheme can be found at http://www.helptobuy.gov.uk/home. Help to Buy: ISAs are only available to first-time buyers and not second steppers.

Property Valuation

39. The Authority to Proceed is subject to receipt by the applicant’s solicitor of (a) a mortgage valuation valuing the property at no less than the full purchase price or (b) (if the mortgage is being provided by a lender which does not provide the applicant’s solicitor with a copy of the valuation) a mortgage offer which contains details of the valuation). If in the case of an applicant aged 60 or over the applicant is not taking out a mortgage, a mortgage valuation will still require to be instructed. Scottish Ministers must be able to rely on the property valuation for the purpose of providing financial support through the Help to Buy (Scotland) Affordable New Build Scheme. Generally this will be done by way of a Letter of Reliance which is asked by Scottish Ministers from surveying firms registered with the RICS and which will cover all valuations undertaken by the firm of surveyors in relation to the Scheme within a 12 month period. A list of those surveyors which currently provide a Letter of Reliance in these terms can be obtained from Lesley Dyker at the Scottish Government (HousingMarkets@gov.scot ). If a valuation is undertaken by a surveying firm which does not participate in these reliance arrangements, the valuation report must expressly state that it can be relied upon by Scottish Ministers. The Administering Agent is required to check the property valuation against the full purchase price. If the property valuation is lower than the purchase price, then the purchase price will be required to be lowered to match the property valuation. Administering Agents should note that if a valuation is taken from a mortgage offer then a Letter of Reliance should still be obtained from the surveying firm who carried out the valuation.

40. The Administering Agent should then contact the applicant’s solicitors to confirm whether or not the property valuation matches the full purchase price. If the purchase price is higher it must be reduced to the level of the property valuation or lower and a revised application form must be submitted and signed by the applicant. The Administering Agent should provide the buyer’s solicitor with a web link to the Sales Log Form either at this point or at the point of issue of the Authority to Proceed and ask for it to be completed online. The Scottish Government will provide each Administering Agent with a web link to the Sales Log Form.

41. Settlement must not take place unless the Certificate of Title has been received by the Administering Agent from the applicant’s solicitor. The Certificate of Title will contain the settlement date and the Administering Agent should confirm that the settlement date is acceptable with the buyer’s solicitor.

42. Provided that the valuation of the property is satisfactory, the Administering Agent should submit an electronic grant claim to the Scottish Government.

The responsibilities associated with buying a home

43. 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. The owner will have full title to the property. Scottish Ministers hold a heritable security over the property which is discharged upon the open market sale of the property or purchase of the remaining equity stake by the shared equity owner. 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. 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.

44. In so far as practicable, Administering Agents should encourage applicants to discuss common maintenance and/or service charges with their solicitor to find out how much these additional costs are before they proceed with buying a property.

45. Your home should be your sole residence and permission to let your home will not be given in any circumstances. If you let your home or do not reside there as your sole residence then this will be a breach of the shared equity agreement and enforcement action could be taken

46. Administering Agents should make sure that applicants are made aware of these obligations (and the associated financial responsibilities) when they apply to Help to Buy (Scotland). Administering Agents 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. Administering Agents should also recommend that applicants contact an independent financial advisor if they have not already done so.

47. The standard styles of legal documentation are set out in Appendices 1-3.

Timing and Monitoring of Transactions

48. Applications from prospective eligible buyers cannot be submitted more than 9 months before the expected completion date for the purchase of the home. Missives for each transaction must be concluded within 3 months of the date of the issue of an Authority to Proceed. If missives for a transaction have not been concluded by 2 weeks prior to the end of the 3 month period of the date of the issue of an Authority to Proceed, the administering agent should write to the buyer/buyer’s solicitor to inform them that the application is due to expire in 2 weeks’ time. If the 3 month period expires without missives being concluded, then the Authority to Proceed lapses, and the applicant will no longer qualify for support under the Scheme and will have to submit a fresh application for possible financial support under the Scheme.

49. Settlement of the purchase of a home must take place within 9 months from the date of the issue of the Authority to Proceed letter. If it is foreseeable that a purchase transaction is unlikely to complete within the maximum 9 month period of time, the home builder must inform the Administering Agent as soon as possible in order for the Agent and Scottish Government to determine if it is possible for any flexibility to be provided in order to extend the permitted timescale for completion. Flexibility should only be provided in certain limited situations which are genuinely out with the builder’s control- for example, severe weather causing a delay to the building work, or a delay by a local authority in inspecting the home in order to certify completion.

50. The Administering Agent should monitor the progress of all Help to Buy (Scotland) Affordable New Build Scheme transactions.

Payment Claims

51. Processing of payment claims in HARP will work as follows:-

• The Applicant Finance Inputter will enter transactions eligible for payment on a claim spreadsheet. This spreadsheet will perform various checks such as ensuring postcodes are in upper case and developers names are in the agreed format. Once complete the applicant will click on the create CSV file button on the spreadsheet. This file should then be uploaded to the HARP system and forwarded for internal authorisation.

• The Applicant Finance Approver will check the claim and, if satisfied, will authorise the claim or reject it. The approver may add comments, as appropriate, for the SG Finance team.

• The SG housing finance team will check the claim and all relevant back up documents and either accept or reject the claim.

• If the claim is accepted it will be processed for payment and marked paid, if rejected it will be returned to the applicant for a rework

52. In the event of a purchase failing, or if a change occurs to the data as submitted, then the following procedure applies:-

• The Applicant Finance Approver creates a change request, adding supporting documentation as required.

• The SG housing finance team will review the request and either approve or reject it, adding comments as necessary. If the change is for a failed sale then a sales invoice will be sent out.

53. The SG will mark off settled sales in HARP that are notified by their solicitors (Harper Macleod). This will feed into a standard report in the HARP system indicating which properties have not settled within 14 days of the payment of grant. It is the responsibility of the Applicant Finance Approver to ensure that dates of entry are reviewed and monitored and appropriate action is taken for those transactions breaching 14 days

Monitoring who is provided with assistance under the scheme

54. The Scottish Government monitors who is housed in properties funded by the Help to Buy (Scotland) Affordable New Build Scheme.

55. The Sales Log Form (set out in Annex D) is in two parts. The first part (Part A) relates to details of the property that has been bought and should be completed by the Administering Agent. The second part (Part B) gives details about the household which has bought the property and should be completed by one of the named purchasers.

56. The Administering Agent must provide a web link to the Sales Log Form to both the solicitor and purchaser either with the issue of the Authority to Proceed or at a later stage. The purchaser or solicitor should then access this link and complete the form. It should only take a few minutes to complete.

57. The Scottish Government has contacted Administering Agents separately about access to the online Sales Log Form.

58. The online Sales Log Form system will generate a CSV document detailing all the forms with a summary of all of the information in Part B that has been completed and this will be sent to administering agents on a weekly basis. The CSV will contain several empty columns for the agents to complete and this is the information that forms Part A of the Sales Log Form. Administering Agents are encouraged to complete this information on a monthly basis.

59. Administering agents should provide a copy of the CSV to the Scottish Government on a quarterly basis. It will contain a record of all transactions with information on each one obtained from completed Parts A & B of the Sales Log Form.

Maintaining Information on Help to Buy (Scotland) Affordable New Build Scheme transactions and reporting arrangements

60. The Administering Agent should maintain a complete electronic record of each Help to Buy (Scotland) Affordable New Build Scheme transaction including all relevant documentation (and including subsequent Charge Sheet documentation).

61. Administering Agents should provide Scottish Government with a weekly report in the format that will be provided separately (with instructions) to this guidance.

Post Sale Work for all Help to Buy (Scotland) Affordable New Build Scheme Transactions

62. The Scottish Government has prepared After Sale Shared Equity Procedures for use by Administering Agents administering post sale shared equity work. The procedures contain sample emails and correspondence to be used for a variety of post-sale issues.

Data Protection

63. Administering Agents act as a data processer in relation to Help to Buy applications. Further detailed information is contained in the Shared Equity Privacy Notice The retention periods for information processed by Administering Agents on behalf of Scottish Government are as follows:

• Application Information and supporting documentation (i.e. forms, wage slips, Key Facts form lenders) – This should be held for the remainder of the calendar year within which the information was received plus an additional 12 months
• Sales Log forms – This information should now be sent directly to our Analytical Services colleagues (joseph.jobling@gov.scot). This data should be held for 5 years following the end of the calendar year in which it was received.
• Shared Equity Owner and Property Purchase Information where Scottish Ministers hold an equity stake – This information should be held indefinitely until ministers securities are discharged and for the remainder of the calendar year plus a further 6 years subsequent to discharge for audit purposes
• Non-anonymised Customer Satisfaction Survey and Testimonials - The information should be destroyed within 12 months after the end of the calendar year the information was received, unless the individual has given express permission for it to be used in publicity materials.

All shared equity information stored by Administering Agents on behalf of the Scottish Government must be stored in electronic form.