New Supply Shared Equity administrative procedures

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 the Low-Cost Initiative for First Time Buyers (' LIFT'). It aims to help people on low to moderate incomes access home ownership and to buy a new build home from a Registered Social Landlord.

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 aims to help all first-time buyers, and must be promoted actively to social renters, i.e. people who currently rent from either a Registered Social Landlord or a local authority, serving members of the armed forces, veterans who have left the armed forces within the past two years, and widows, widowers and other partners of service personnel who have been killed recently whilst serving in the armed forces. 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 Area Housing Supply Team 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 Registered Social Landlords must inform applicants that they are expected to make payment of all sums due under the New Supply Shared Equity Scheme when they sell their home. Registered Social Landlords should note that one of the main changes to the shared equity legal documentation which is being introduced in these March 2014 administrative procedures is that the shared equity arrangements between Scottish Ministers and individual shared equity owners will run indefinitely and that owners will not be required to grant a replacement standard security in the nineteenth year after their purchase of their property in order to address the legal implications of the "20 year security rule". Scottish Government proposes to make an amendment to the 20 year security rule as part of the Housing Bill which was introduced to the Scottish Parliament on 21 November 2013. The amendment aims to remove the right to redeem securities after 20 years for those participating in designated schemes including the New Supply Shared Equity scheme. The style of legal offer to sell which is set out in ( Annexe A) has therefore been amended to include a clause bringing this matter to the attention of purchasers and their solicitors.

1.9 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:

1.10 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.

1.11 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.

1.12. In so far as practicable, Registered Social Landlords should provide applicants information on common maintenance and/or service charges, and the Homes Buyers Warranty at an early stage as well as reliable and realistic information about when the construction of the property may be finished and other matters referred to in the Consumer Code for Home Builders (see below).

1.13 Registered Social Landlords are expected to follow the Factoring Guidance published by the Scottish Federation of Housing Association. More information can be found at http://www.sfha.co.uk/sfha/publications/factoring-guidance-booklet

1.14 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 to no longer than a 12 month period 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. If required, under the terms of their mortgage, an owner is expected to inform their lender that they wish to let or sub-let the property. If at the end of the 12 month period, an owner is seeking an extension to sub-let the property, further consent will need to be sought.

1.15 Save in very limited circumstances all private landlords must register with their local authority to ensure that they are a "fit and proper person" to let property. It is an offence to let any house without being registered. Further information on the registration process is located on the Scottish Government website at http://www.scotland.gov.uk/Topics/Built-Environment/Housing/privaterent/landlords/registration).

1.16 Any consent to sub-let a property will be conditional on appropriate certification on registration; length and nature of tenancy and other consents including that of the Primary Lender. Further details including relevant correspondence are set out in the After Sale Shared Equity Procedures (" ASSEP Procedures") A copy of the ASSEP Procedures can be found on the Scottish Government website at www.scotland.gov.uk/LIFT.

1.17 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

1.18 Section 107 of the Housing (Scotland) Act 2010 states that Registered Social Landlords must obtain written consent from the Scottish Housing Regulator for certain disposals of land or property. New Supply Shared Equity properties are covered however by the General Consent issued by the Scottish Housing Regulator dated 2 ^nd April 2012. 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

1.19 Annexe A contains the standard styles of legal documentation 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. Scottish Government Solicitors have been appointed to carry out this work and they will liaise closely with the Registered Social Landlord and their solicitors. Harper Macleod are currently the solicitors appointed by Scottish Government to carry out this work.

1.20 In essence Scottish Government Solicitors 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, burdens/deed of conditions/development management scheme/disposition of individual houses, searches etc will be dealt with by the Registered Social Landlord's own solicitor.

1.21 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.

1.22 Annexe A also contains a standard style of offer to sell and draft disposition with provisions 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 as well as the principles underpinning the Consumer Code for Home Builders (referred to below). This will include inserting plan(s) and conveyancing descriptions in order to ensure uniformity across the site and may include a draft Deed of Conditions or development management scheme.

1.23 Once agreed, the Registered Social Landlord's solicitors should make a formal offer to sell to the solicitors acting for the purchaser.

1.24 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 Scottish Government Solicitors will deal with the shared equity documentation shown in Annexe A.

Processing legal documentation - projects approved before 12 May 2009

1.25 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.

1.26 Authorised officials of the Scottish Government Housing, Regeneration and Welfare Directorate must sign every Minute of Agreement and Ranking Agreement on behalf of the Scottish Ministers their contact details can be found in section eight ^[2] .

1.27 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 Area Housing Supply Team 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.

1.28 The solicitors should also complete the standard style of offer to sell and draft disposition and any Deed of Conditions/Development Management Scheme and make a formal offer to sell to the solicitors acting for the purchaser in accordance with Clauses 1.17 to 1.20. 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.

1.29 Registered Social Landlords must also ensure that they have all appropriate licences and authorisations for consumer credit purposes in relation to their role in the administration of NSSE transactions. As a consequence of responsibility for the regulation of consumer credit being transferred from the OFT to the Financial Conduct Authority ( FCA) with effect from 1 ^st April 2014, any applications for authorisation after that date must be made to the FCA. While Scottish Government cannot provide Registered Social Landlords with advice on which FCA authorisations may be required, the detailed regulations on which activities are regulated by the FCA were amended with effect from 27 June 2014 to provide that "credit broking" is not a regulated activity for which FCA authorisation is required where the broking relates to a secured loan provided by either the Scottish Ministers or a registered social landlord, which means that Registered Social Landlords should not require authorisation for "credit-broking" in relation to NSSE. It is possible, however, that authorisation may still be required for Category F (debt collecting) and/or Category G (debt administration). Registered Social Landlords may wish to consider guidance that has been provided to them by the Scottish Federation of Housing Associations on this particular issue.

1.30 Registered Social Landlords should comply will all relevant Guidance Notes related to the Affordable Housing Supply Programme and New Supply Shared Equity Scheme. A copy of all guidance notes is located at http://www.scotland.gov.uk/Topics/Built-Environment/Housing/investment/guidancenotes