After sale shared equity procedures: guidance 2019

13 Alterations to the Property

OMSE and NSSE properties

In terms of the OMSE and NSSE schemes any request by an owner to alter their property will be considered on a case by case basis. For OMSE and NSSE, any increase in the value of the property which is attributable to any additions or improvements undertaken to the property by the owner are taken into account if the property is being sold or where a payment event occurs. This is clearly set out in the shared equity documentation.

Owners should also be aware that it is a standard condition of the standard securities which they will have granted over the title to their home to both the primary lender and to Scottish Ministers that the owner should not alter or add to the property without the prior written consent of the security holder.

Accordingly, while Scottish Ministers are not positively seeking to restrict or control the ability of OMSE or NSSE owners to undertake home improvements, RSLs may on occasion be contacted by owners either requesting consent from Scottish Ministers as second ranking charge holders, or seeking clarification as to whether consent is required or how the proposed works will be treated for the purposes of the shared equity documentation.

If an OMSE or NSSE owner does contact the RSL in relation to such matters, the RSL should first determine whether the proposed works are of a type which require consent. Please see below for Scottish Government’s view on material improvements and minor works. If the RSL determines from its initial discussions that the proposed works are minor in nature, then the RSL should indicate to the owner that the consent of Scottish Ministers is not required. Conversely, if it appears as though the proposed works are material, then the RSL should use the templates set out in Annex 9.

HtB(S) properties

The position in relation to improvements is different for HtB(S) properties. Any alterations or improvements carried out to a property by a HtB(S) owner are not taken into account for the purposes of the valuation of the property, and again this is clearly set out in the relevant shared equity documentation. However, the prior written consent of Scottish Ministers to any alterations or improvements to the property is required, and such works will only be disregarded for valuation purposes if consent has been obtained. Scottish Government has made clear in the Post Sales Information which has been published for the HtB(S) schemes that substantial home improvements will not normally be permitted while Scottish Ministers continue to hold an equity share in the property, since the expectation is that if further funds become available to an owner, the funds should be used to purchase some or all of Scottish Ministers’ equity share before the funds are spent on home improvements.

As with OMSE and NSSE properties, it is a standard condition of all HtB(S) standard securities in favour of Scottish Ministers that consent is required if the owner proposes to “alter or add to” the property. The HtB(S) shared equity agreement also provides that no “additions or improvements” are to be undertaken or carried out at or to the Property except with the prior written consent of Scottish Ministers.

The view of Scottish Government is that consent will be required in the case of material improvements but not in relation to more minor works. We would regard material improvements as covering matters such as constructing an extension to the house (eg an additional room or conservatory/summer room etc); converting an integral garage or attic space into a room for living in; or generally undertaking work for which planning consent or a building warrant is required.

Conversely, we would regard “minor works” as including non-structural alterations, decoration, replacement of kitchen units or bathroom fittings, or other works for which planning consent or a building warrant are not required.

If a HtB(S) owner applies to the RSL for consent to carry out home improvements, the RSL should have an initial discussion with the homeowner to first identify how significant the proposed improvements are and to determine whether the consent of Scottish Ministers is actually required. If the works are minor in nature, then the consent of Scottish Ministers is not required.

If a homeowner proposes to make material improvements to the property, the RSL should inform them that this is not permitted as the owners are expected to tranche up and buy additional equity prior to undertaking any home improvements. No correspondence templates or application forms for consent should therefore be issued to HtB(S) owners where the homeowner is proposing substantial home improvements, nor should owners be required to pay an administration fee.

If an owner is unhappy at being told that consent will not be given to proposed material improvement works, the RSL may refer the matter to the Scottish Government More Homes Division for further consideration, although for the reasons set out above it is still very unlikely that consent will be given.

If consent is given, the RSL should submit a ‘project change request’ in HARP to note that consent for a proposed alteration has been given, along with the property address. If possible, the HARP Property Reference Number should be provided.

First Home Fund

All home improvements will be permitted as standard for properties purchased using First Home Fund, without prior consent from the Scottish Ministers but subject to the necessary planning permission and or building warrants for major improvements. If any improvements add to the value of your property, Scottish Ministers will share in the increased value at the time of selling or increasing your equity, while Scottish Ministers still retain an equity stake.

However, if an owner wishes to borrow in excess of their original mortgage to pay for home improvements, either with their existing or a new lender, then Scottish Ministers consent is required.