Open Market Shared Equity Scheme: administrative procedures

3) Assessing, approving and paying grant

This section describes the procedures which Administering Agents must follow when assessing, approving and paying grant under the Open Market Shared Equity Scheme.

3.1 Standard application form

Administering Agents must issue the standard application form at Annex B to applicants to the scheme. The only amendment that Administering Agents must make to the form before issue is to the areas listed in Part 1, question 1. Individual Administering Agents must make sure that the form they use only specifies the areas where that Administering Agent is administering the Open Market Shared Equity Scheme.

If incomplete forms are returned, Administering Agents must ask applicants to provide any missing information before the application is assessed. Applicants must be made aware that their application will not be considered until all the necessary information is supplied.

3.2 Initial assessment

Administering Agents must use the guidance set out in Annex C to assess the level of resources that an applicant is able to put towards the purchase. The applicant should refer to the relevant maximum price ceiling for the size of property that they wish to buy in the area of their choice. If the assessed minimum contribution is at or below 90 per cent of the maximum price ceiling, the applicant may be entitled to receive a 'passport' to look for a property. Annex D contains the standard form of passport letter that Administering Agents must issue to applicants. The CSV document will contain blank columns pertaining to information in Part A of the Sales Log Form that agents are required to complete. Due to data protection rules, the CSV document will not contain names of applicants and therefore Administering Agents will need the unique reference number provided in the passport letter to identify who the applicant is.

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 purchased under the Scottish Government open market shared equity scheme. 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 to Solicitors which form part of the legal documentation contained in Annex A, and more information on the Help to Buy: ISA scheme can be found at Help to Buy ISA - GOV.UK (www.gov.uk). Help to Buy: ISAs are only available to first-time buyers and not second steppers.

3.3 Passport letter

The passport letter gives applicants 12 weeks from the date of issue to search for a property and to have an offer to purchase accepted.However the date of entry can be a later date subject to entry being taken before the end of each current financial year.

The passport letter must refer to the maximum price thresholds for 2 apartment to 6 apartment properties in different areas and which are published on the Scottish Government's website and updated as necessary. Applicants can pay over valuation for a property from their own funds, provided they do not pay more than the published threshold amount for that area and size. If an applicant wishes to buy a 7/8/9 apartment property, the maximum threshold price for a 6 apartment will apply. The only exception to this is in the case of priority groups or applicants with particular housing needs arising from disability where additional flexibility can be applied to the price of properties that can be purchased, subject to relevant evidence.

For the purposes of this scheme, an apartment is classified as any habitable room, but does not include kitchens, bathrooms, box rooms, utility rooms or hallways. Glass conservatories do not qualify as an apartment. Open plan rooms, which for example have an arch splitting two spaces, is counted as one apartment. Apartments must be completely separated by a divider and should have a space no wider than a doorway between them to count which should preferably have a closable door.

Administering Agents must ensure that each passport letter they issue is recorded in their standard monthly report to the Scottish Government (see section 6).

3.4 Property check

If an applicant finds a property, the Administering Agent must:

• check that it is within their area of operation and whether the golden share will apply.
• check the schedule of sale to see if the property is within the guidelines set out above and, if this is the case, check that the independent valuation, whether under a Home Report^[1] or where necessary under a valuation obtained by the purchaser from an independent professionally qualified valuer who is registered with the RICS, is within the relevant maximum price ceiling. Applicants can pay over valuation for a property from their own funds, provided they do not pay more than the published threshold amount for that area and size.
• check that the requirements of the grant offer in connection with the valuation are met in every case.
• check the level of financial contribution that the applicant can put towards the purchase (against the criteria set out in Annex C); and
• check that the level of equity stake that the applicant can afford is within acceptable limits – normally between 60 per cent to 90 per cent of the purchase price or valuation whichever is lowest, for Open Market Shared Equity.

3.5 Property purchase

If the application complies with the above criteria, the Administering Agent should let the applicant know that they can proceed to instruct their solicitor to issue a formal offer to purchase. At the same time, the Administering Agent should liaise with Scottish Government Solicitors in terms of template correspondence to ensure that the matter progresses in an orderly manner. The sales log form should at that time be e-mailed directly to the buyer's solicitor who should ensure that the buyer completes it and notifies when this has been done.

The instruction letter which the Administering Agent issues to the applicant records the amount of grant which the Scottish Ministers will be contributing towards the purchase price, and the corresponding equity stake that the Scottish Ministers will have in the property. This percentage equity stake calculation will be based on the Scottish Ministers' contribution divided by the purchase price or valuation, whichever is the lowest, to two decimal places.

Annex C shows how these sums must be calculated and the methodology set out therein must be followed for each purchase through the Open Market Shared Equity Scheme.

3.6 Standard styles of legal documentation

Annex A contains the standard styles of legal documentation that must be used when operating the Open Market Shared Equity Scheme. These are:

• Standing Instructions that Administering Agents must complete and send to solicitors acting for applicants;
• A copy sales log form. The sales log form is in two parts. The first part (Part A) relates to details of the property that has been bought and is completed by the Administering Agent. The second part (Part B) gives details about the household which has bought the property and is completed by one of the named purchasers. The Administering Agent must provide a web link to the Sales Log Form to the purchaser's solicitor who must ensure that Part B of the form is completed by the buyer;
• Minutes of Agreement ('Shared Equity Agreement') – these documents set out the basic arrangement between the owner and the Scottish Ministers. There are two versions - one where the Scottish Ministers are not retaining a Golden Share and one where they are;
• 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.

Following discussions with the Law Society of Scotland, it has been agreed that applicants and Scottish Ministers should be separately advised in connection with the Shared Equity Agreement, the Ranking Agreement, and the form of the Standard Security. However, in order 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.Annex A therefore contains standing instructions to solicitors acting for applicants in connection with the completion of the Standard Security in favour of the Scottish Ministers together with style certificate of title to be provided. Administering Agents should ensure that any matters reported to them by the purchaser's solicitors are appropriately and properly dealt with having regard to the terms of paragraphs 51 and 52 of the Standing Instructions. This includes ensuring that the matter has been reported in similar terms to the primary lender. Settlement must not take place unless the certificate of title has been received by the Administering Agent.

Administering Agents should note that Scottish Ministers reserve the right to decide, at their discretion, not to instruct an applicant's solicitor to act in accordance with the Standing Instructions. If Scottish Ministers determine that they are unwilling to issue the Standing Instructions to any particular solicitor or legal firm, either permanently or for a period of time, Agents will be notified, and the applicable alternative arrangements explained. In the absence of such notification to Agents, however, Agents should proceed in line with paragraph 2.14 above.

Authorised officials of the Scottish Government More Homes Division or Scottish Government Solicitors (if they have been granted a power of attorney) must sign every Minute of Agreement and Ranking Agreement on behalf of the Scottish Ministers. This will be dealt with by Scottish Government Solicitors who will liaise with Administering Agents as required.

The standing instructions to solicitors acting for applicants set out provisions for the payment of fees (paragraph 54 of the standing instructions). The applicant's solicitor must attend to the registration of the Standard Security and Ranking Agreement whilst Scottish Government Solicitors will deal with the registration of the Shared Equity Agreement in the Register of Deeds but all registration dues are payable by the applicant.

3.7 Grant payment - Administering agents

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. 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

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.

The SG will record settled sales in HARP that are notified from their solicitors. 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.

Administering Agents should note that it is not necessary for them to wait until the applicant's solicitors have submitted their Certificate of Title before the payment claim is submitted by the Administering Agents to the Scottish Government. Administering Agents should be aiming to submit their payment claims on HARP at the earliest opportunity in advance of the anticipated completion date to ensure that the funds will be released by Scottish Government and made available in time for the proposed settlement date, having regard to the timescales which apply within Scottish Government for processing and making payments.

Release of funds to the applicant's solicitor must not take place unless (1) the Certificate of Title has been received and (2) the Administering Agent has received confirmation from Harper Macleod that all necessary documents are satisfactorily in place. The Administering Agent will agree with the purchaser's solicitors a settlement date.

Administering Agents will be asked to provide a quarterly report containing a summary of the completed sales log forms.

3.8 Settlement

The Administering Agent must ensure that the property purchase is recorded in its monthly report to the Scottish Government (see section 6).

The Administering Agent must ensure that every applicant who purchases a home with assistance from the scheme is provided with a copy of the LIFT – Post Sale Question and Answer leaflet.

3.9 Data Protection

Administering Agents act as a data processer in relation to shared equity 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 (housingstatistics@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.