Section One: The Open Market Shared Equity Scheme
1.1 The Open Market 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 to become home owners where this is sustainable for them. The Scheme helps eligible buyers to buy a home within a certain price threshold that is for sale on the open market. From 1 October 2017 Link Homes will act as administering agent across all administrative areas in Scotland.
1.2 The methodology for providing Open Market Shared Equity is set out in these procedures. The role of the Administering Agents is to act for the Scottish Ministers in the funding of part of the price of a property purchased by an eligible buyer under the scheme. In return, an eligible buyer will enter into a Shared Equity Agreement with the Scottish Ministers which is secured by an appropriately ranked standard security.
1.3 Administering Agents are therefore acting for the Scottish Ministers and, as such, must follow these administrative procedures and have due regard to the interests of the Scottish Ministers.
1.4 A central conveyancing contract has been established under the Scottish Government Framework Agreement for the Provision of Legal Services for the Administering Agents operating the Open Market Shared Equity Scheme. Scottish Government Solicitors have been appointed to carry out this work. There is therefore no requirement for Administering Agents to appoint their own solicitors.
Target groups to be housed
1.5 Target groups for the Open Market Shared Equity Scheme must fit the objective of supporting households on low to moderate incomes to become home owners where ownership is affordable and sustainable for them. The Open Market Shared Equity Scheme provides priority access to certain priority groups which include 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, widows, widowers and other partners of service personnel who have been killed recently whilst serving in the armed forces, disabled people who are either first time buyers or who own a home that is not suitable to their particular needs, and persons aged 60 and over who demonstrate a housing need to move against the set criteria . To be eligible, applicants must not have an ownership interest in any other residential property.
1.6 Administering Agents must make sure that duties under the (a) Statutory Code of Practice on the Duty to Promote Race Equality in Scotland, (b) Statutory Code of Practice on Racial Equality in Housing: Scotland, and (c) Duty to Promote: Statutory Code of Practice Disability Equality Duty: Statutory Code of Practice: Scotland are met when targeting the Open Market Shared Equity Scheme.
1.7 Non-United Kingdom nationals are eligible for assistance under the Open Market Shared Equity Scheme so long as they do not have a home elsewhere and meet any other eligibility criteria set for the scheme.
1.8 Applicants who purchase property through the Open Market Shared Equity Scheme generally need to take an equity stake of between 60 and 90 per cent of the value of a property (or purchase price whichever is lower), as set by an independent professionally qualified valuer who is registered with the Royal Institution of Chartered Surveyors ( RICS). The Scottish Ministers will keep a financial stake in the property so the applicant does not have to fund all of it. In certain limited circumstances however, the Scottish Government may agree to reduce the minimum equity stake to as low as 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 Annexe D, paragraph 12). In all cases, the maximum initial equity stake that any owner can take is 90 per cent of the value of a property.
1.9 The level of equity stake that the Scottish Ministers will have in a property depends on the level of equity stake taken by an owner. For example, if an owner has an equity stake amounting to 60 per cent of the value of a property, the Scottish Ministers will have a 40 per cent equity stake in the value of that property.
Valuations and Letters of Reliance
1.10 Scottish Ministers must be able to rely on the valuation provided in the Home Report or valuation for the purpose of providing financial support through the Open Market Shared Equity Scheme. This will normally be done through an over-arching arrangement between Scottish Government and RICS members pursuant to which valuers agree to extend a duty of care to Scottish Ministers in relation to all valuations prepared by them for properties which come within the Open Market Shared Equity scheme.
1.11 Administering Agents must check the valuation report (which may form part of a Home Report) and ensure that it has been prepared by a surveying firm which is a member of the RICS. The property valuation must have been carried out within the past three months. The Administering Agent is required to check the property valuation against the full purchase price. It should be noted that, in the case of eligible applicants who are aged 60 and over and who do not intend to take out a mortgage to assist with the purchase of the property, a property valuation will still be required. Administering Agents should also note that valuations must only relate to the value of the property itself and not to any contents, moveable items etc.
1.12 Applicants to the Open Market Shared Equity Scheme must be means tested in order to establish eligibility.
1.13 Administering Agents must inform applicants that they are expected to make payment of all sums due to Scottish Government under the Open Market Shared Equity Scheme when they sell their home. Administering Agents should note 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 plans to introduce secondary legislation in 2016 to exempt certain shared equity schemes, including the open market shared equity scheme, from the provisions of the '20 year security rule'. The standing instructions to purchasers' solicitors which form part of Annexe A include clauses and a template letter bringing this matter to the attention of purchasers and their solicitors.
The responsibilities associated with buying a home
1.14 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. Unlike shared ownership, an owner will have full title to the property and will not make occupancy payments. 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 .
1.15 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.
1.16 In so far as practicable, Administering Agents should encourage Open Market Shared Equity Scheme 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.
1.17 An owner is not allowed to let or share possession of the property or any part of it without the Scottish Ministers' prior written consent, and owners are expected to live in the property as their only place of residence. (As noted above, Administering Agents will act for the Scottish Ministers in this regard.) If consent is granted, this will be time-limited normally to a period of 6 months and potentially for a further 6 months extension period, 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 (if applicable), an owner is expected to inform their lender that they wish to let the property.
1.18 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
1.19 Any consent to let a property will accordingly be conditional on appropriate certification on registration; length and nature of tenancy and other consents including that of the Primary Lender, if applicable. Further details including relevant correspondence are set out in the After Sale Shared Equity Procedures
1.20 Administering Agents should make sure that applicants are made aware of these obligations (and the associated financial responsibilities) when they apply to the Open Market Shared Equity Scheme. 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. Reference in this regard may be made to the Application Form - Part 8 Appointing a Solicitor ( Annexe B). Administering Agents should also recommend that applicants contact an independent financial advisor if they have not already done so.
1.21 The standard styles of legal documentation are set out in Annexe A .
The golden share
1.22 In certain circumstances, such as in areas where there is a highly constrained supply of affordable housing and little or no scope for this supply to be increased, the Scottish Ministers may be allowed to retain a 10 per cent equity stake in a property, known as a 'golden share'. The golden share will only be used in areas where there are fewest opportunities for supply to be increased - in particular some rural areas. The Scottish Government will agree any areas for operation of the golden share with each local authority, and will communicate these to Administering Agents. The retention of a golden share is secured through the Shared Equity Agreement as provided for in Annexe A.
1.23 Where applicable, Administering Agents must (i) explain to applicants what it means to have a 'golden share' over a property and (ii) ensure that individual passport letters record where a golden share will apply (see Annexe D).
Licences and Office of Fair Trading ( OFT)/Financial Conduct Authority ( FCA) permits
1.24 Administering Agents must ensure that they have all appropriate licences and authorisations for consumer credit purposes in relation to their role in the administration of OMSE 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 Administering Agents 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 an Administering Agent, which means that Administering Agents should not require authorisation for "credit-broking" in relation to OMSE transactions. It is possible, however, that authorisation may still be required for Category F (debt collecting) and/or Category G (debt administration). Administering Agents may wish to consider guidance that has been provided to them by the Scottish Federation of Housing Associations on this particular issue.
1.25 Administering Agents should ensure that any publicity material they produce for the Open Market Shared Equity Scheme meets all statutory requirements and is discussed in advance with the trading standards department of the relevant local authority. All publicity material produced by Administering Agents should also make clear that the scheme is funded by the Scottish Government as part of LIFT.