After sale shared equity procedures: guidance 2019

4 Increase stake to less than 100%

Old Rules - OMSE and NSSE

Many existing shared equity Agreements provide that an owner must wait a minimum period of two years after the initial purchase before they can increase their equity stake in a property to 80 per cent or beyond and up to 100 per cent if there is no Golden Share. Any subsequent equity stake increase can only take place if there is no Golden Share and should be at least one year after the date of the initial increase. This must take the owner to 100 per cent.

New Rules - OMSE and NSSE

Under the new rules, the shared equity owner has the following additional options:

(a) the shared equity owner can increase their equity stake at any time after acquiring the property;

(b) the minimum additional equity stake increase must be at least 5% and (in cases where there is no Golden Share), if the previous equity stake brought the shared equity owner's equity stake up over 90% any further increase must be to purchase equity up to 100%.

(c) the increase in the Equity Stake can occur at any time and may be within one year of any previous increase.

(d) if there is a Golden Share the maximum amount that may be acquired by a shared equity owner is (a) 80 per cent in a NSSE property and (b) 90 per cent in an OMSE property.

Please note that these changes to the rules around increasing lift shared equity stakes apply retrospectively to all OMSE and NSSE and homestake transactions

HtB(S) Rules

The HtB(S) Administrative Guidance reflects the new rules above (with the exception of the Golden Share provisions which do not apply to the HtB(S) scheme). The following rules apply to shared equity owners under the HtB(S) scheme:

(a) the shared equity owner can increase their equity stake at any time after acquiring the property;

(b) the increase must be for a minimum 5% equity stake;

(c) if the previous equity stake brought the shared equity owner's equity stake up over 90% any further increase must be to purchase equity up to 100%;

(d) the owner may increase their equity stake up to 100%.

Equity Increase Procedures

An owner can increase their equity stake regardless of whether the open market value of their property has increased or decreased.

An owner will be responsible for meeting all costs (including those incurred by the RSL when increasing their equity stake.

There will be no means-testing of owners following the initial purchase and RSLs must recommend to owners that they take independent advice before increasing their equity stake.

Annex 3(I) illustrates how a financial reconciliation would work in a non-Golden Share transaction when an owner increases their equity stake from 65 per cent to 85 per cent, and then from 85 per cent to 91 per cent and then from 91 per cent to 100 per cent.

The open market value of the property will be determined by the District Valuer or such other professionally qualified valuer as is agreed between the Scottish Ministers and an owner. For OMSE and NSSE properties, the valuation will reflect any improvements carried out to the property by an owner but will disregard matters such as lack of vacant possession, any breach of an owner's obligations, any security or other encumbrance, improvements and any reduction in value caused by adaptations carried out to meet the needs of a disabled person. In the case of HtB(S) properties, the valuation assumptions and disregards will be similar, but improvements carried out by the owner which Scottish Ministers have given written consent to are to be disregarded. It will therefore be important that RSLs check individual shared equity agreements to be clear on the correct treatment of improvements for valuation purposes.

In order to deal fairly with the shared equity owner the selected surveyor should be instructed to address the Valuation to the RSL - or as the case may be Scottish Ministers - and the shared equity owner. An example of such a letter is set out in Annex 2(K).

The shared equity owner is entitled in terms of the documentation to request that the RSL agrees a valuer of their choosing. If the RSL is not satisfied with the owner's selection of a valuer, they should insist that the District Valuer be used and inform the shared equity owner.

Once a copy of the Valuation is received it should be forwarded within seven days to the shared equity owner who has three months to increase their equity stake and make payment.

If the shared equity owner decides to proceed following receipt of the Valuation, the RSL should instruct Harper Macleod to record the change in equity share.

The RSL should provide the shared equity owner with information on what their fees will be. These will be payable in advance and are non-refundable.

Once the capital receipts are received by the RSL, they must be returned to Scottish Government More Homes Division Finance team at Shared_Equity_Support@gov.scot along with a copy of the Equity Stake Increase Form (Equity Increase Form) set out in Annex 3(H).

RSLs must also write to each shared equity owner on a five year cycle to enquire whether they are interested in increasing their shared equity proportion. Template letters/email are set out in Annex 3(A) (B) (C) (D) (E) and (G).