The Scottish Ministers Help To Buy (Scotland) Scheme (which we shall refer to throughout this Guide as “HTB”) is generally summarised as being;
A An interest-free loan from the Scottish Government of up to 15% of the purchase price of the new property. The purchase price must not exceed the valuation of the property obtained for mortgage purposes; and
B A loan where there is no fixed repayment period and no requirement to make regular repayments. The amount received under HTB is expressed as a percentage of the property`s value at any point in time.
There have been some changes to the new format of HTB which is available from April 2016 until March 2019.
Under the new HTB, a purchaser can purchase a new build property under HTB but if they already own another property, they must sell it before they complete the purchase of the new house.
HTB was first made available to all buyers purchasing a new-build property up to a maximum value of £400,000. The upper limit on properties qualifying under HTB was then reduced to £250,000.
In order to qualify for HTB, the value of the property depends upon which year it is due to be completed. The qualifying values over the 3 year period for which HTB has been allocated so far are as follows :-
- £230,000 for properties due for completion on or before 31st March 2017
- £200,000 for properties due for completion on or before 31st March 2018
- £175,000 for properties due for completion on or before 31st March 2019
A purchaser can only be eligible for HTB if they can meet the affordability criteria set by Scottish Ministers. This is based on the level of mortgage which the mortgage lender should be able to offer and the deposit which the purchaser is able to pay. It is expected that a single person has the ability to borrow their annual income x 4.5 and couples the ability to borrow their joint annual income x 3.5. The lender will also take the purchasers expenditure into account.
If a purchaser/joint purchaser requires to borrow more than 4.5/3.5 times their income in order to afford the property then they will not be eligible for HTB. A purchaser must be able to provide a deposit of at least 5% of the purchase price, together with the mortgage of at least 80% of the full purchase price, with Scottish Ministers making up the balance of 15%. Should a purchaser be able to make up more than 85% of the purchase price between mortgage and deposit, then Scottish Ministers will only make up the remaining balance. Where a purchaser is able to make up 100% or more of the purchase price between mortgage and deposit they will not be eligible for HTB.
This is a change from the previous HTB where every purchaser received the full 20% contribution from Scottish Ministers.
Scottish Ministers have produced extensive guidance and examples on their website to explain the HTB criteria further (http://www.gov.scot/Topics/Built-Environment/Housing/BuyingSelling/help-to-buy) and we would suggest that you take the time to have a look at the guidance.
Another benefit of the new HTB is that where someone currently owns or has an interest in a property they are also eligible for HTB subject to meeting the criteria and completing the sale of their current property before completion of the new purchase.
A developer can offer the purchaser an Assisted Sale of their current property where the developer controls the marketing of the house to be sold and the seller agrees to accept a minimum price. Developers cannot offer Part-exchange sales where you effectively trade your old property in against the new property under the new HTB.
Features remaining the same under both old and new HTB are as follows :-
- The new property must be the purchasers sole and primary residence.
- The Developer must be registered with the HTB Scheme.
- Completion of the property must take place within 9 months of issue of the Authority to Proceed letter received from the relevant Housing Association in a successful application for HTB.
However, it is important that in addition to the benefits which attracted you to HTB in the first place, which perhaps either facilitated the purchase of the property or made the purchase more affordable than it might otherwise have been, you should understand the detail of the scheme.
This Guide is intended as a practically relevant summary and brief explanation of the HTB legal documentation which will require to be signed by you before the HTB funds can be requested from the local Housing Association operating HTB on behalf of the Scottish Government. It is intended to help you understand the main points regarding the legal contract you are about to enter into with the Scottish Government. However please carefully read through the full versions of all the HTB legal documentation and advise us immediately if there are any points which concern you in respect of the HTB legal documentation or which require further clarification or explanation.
Minute of Agreement
In terms of HTB you are required to enter into a Minute of Agreement with the Scottish Ministers. A copy of the style of Minute of Agreement which you will enter into is attached for your information. Please read over the terms of the Minute of Agreement and bring to our attention any matters which require clarification or which are of any concern to you. The main points of the Agreement are as follows:
Tranching Up – reducing Scottish Ministers Proportion
You are entitled to reduce Scottish Ministers proportion at any time providing that you comply with your obligations and abide by the terms of the Agreement and Standard Security. You are only permitted to reduce Scottish Ministers Proportion by a minimum of 5% of the Deemed Open Market Value at any given time. To reduce the Scottish Ministers Proportion you are required to serve a Reduction Notice as specified in Clause 3.2 of the Agreement and repay the proposed amount within 3 months of serving the Reduction Notice.
You are required to meet the expenses of registration of the HTB legal documentation with the Registers of Scotland. This includes registering the Minute of Agreement = £22.00, Ranking Agreement = £60.00 and Standard Security = £60.00 – Total = £142.00. You will also be required to pay any costs and expenses incurred by the Scottish Ministers in relation to any Payment Events or any expenses incurred in relation to you reducing Scottish Ministers Proportion.
Interest and Losses – depletion in Value
As well as benefitting from any increase in the Actual Open Market Value or Deemed Open Market Value (whichever applies depending upon the nature of the Payment Event) Scottish Ministers also “take the hit” in relation to any decrease in the Actual Open Market Value or Deemed Open Market Value, unless the decrease or depletion is as result of you breaching the terms of the Minute of Agreement, Standard Security or Ranking Agreement eg. failure on your part to properly maintain and/or insure the property, resulting in loss – Clause 6.2.
Generally, interest is only applied on any payment due to Scottish Ministers once the payment falls due and remains unpaid, otherwise HTB is essentially an interest-free loan.
Obligations to Pay – compulsory repayment of Scottish Ministers Contribution
Should you wish to sell your property on the open market you are required to notify Scottish Ministers as soon as possible and provide them with a copy of the Home Report which you have carried out. You are required to ensure that the Open Market Conditions, as set out in Clause 1 of the Agreement, have been complied with. Upon completion of the sale of the property Scottish Ministers require repayment of their proportion of the Actual Open Market Value, as set out in Clause 1 of the Minute of Agreement.
There are of course other events which trigger repayment of the Scottish Ministers Proportion. These are known as Payment Events and are detailed in Clause 1 of the Agreement. You should carefully read over the various definitions of Payment Events and bring to our attention any items which are of concern to you or which require clarification. Should any of these instances occur, Scottish Minsters are entitled to instruct a Valuer to determine the Deemed Open Market Value, as set out in Clause 1 of the Agreement, of the property and calculate the amount due to them. They will then issue you with a Payment Notice and you will have 7 days from receipt of the Payment Notice to make repayment of the amount due.
Generally a transfer to or between spouses (including same sex marriages), civil partners or cohabiting couples would not trigger repayment to Scottish Ministers.
Obviously, the most common type of a Payment Event which you are likely to encounter is if you sell the property, whether on the open market or by private off-market sale.
Examples of the other less common Payment Events are :- any transfer other than sale eg. on death; death, or in the even of a joint property purchase, the second death; ceasing to occupy the property or renting without consent; remortgaging without consent; being under threat of repossession; default under the agreement; provision of false or misleading information when applying for HTB and acquiring an interest in any other property.
In the event that you are issued with a Payment Notice by The Scottish Ministers and fail to pay the amount due within the time specified, Scottish Ministers reserve the right to charge interest on the amount due from the date it became due to the actual payment date at the rate of 2% per annum above the Royal Bank of Scotland plc base rate.
You cannot assign, transfer or novate your rights under the Minute of Agreement eg. sell or transfer the property, whether on the open market or otherwise for, say, 80% of the valuation figure and have the new owner enjoy the same benefits as you have done under the Help To Buy Scheme. This also means you cannot leave the property to your children and have them inherit the same arrangement with Scottish Ministers as your eligibility for HTB was assessed based on your own personal and financial circumstances at the time. Scottish Ministers can however sell the debt on and divulge any information they wish in the process of doing so. They will, in effect, have a substantial mortgage portfolio across the length and breadth of Scotland and could choose to off-load that at any time, whether in whole or in part, without your knowledge or permission. However, it is perhaps less likely, given the potential political fall-out, that the Scottish Government would seek to sell on their right to the debt, as opposed to a private developer selling on their own Shared Equity portfolio accumulated pre-HTB.
You are not permitted to make any additions or improvements to your property which may increase the property`s value without the prior written consent of Scottish Ministers. You are effectively discouraged from carrying out any Permitted Improvements to the property as the Scottish Ministers would prefer you to utilise disposable funds so as to reduce or repay in full the Scottish Ministers Proportion. However, where there have been Permitted Improvements which have a Permitted Improvements Value, then they are taken into account when the property is sold or a Payment Event triggered so that Scottish Ministers do not share in the Permitted Improvements Value. Please note that unauthorised improvements could benefit Scottish Ministers and entitle them to share in any resultant uplift in value.
The Standard Security is the legal charge which will be registered against your property to ensure that should you sell or transfer the property, Scottish Ministers are guaranteed repayment of their entitlement under the Minute of Agreement as you would need to repay their entitlement in order to clear the charge from the property as an integral part of any sale or transfer. The Standard Security effectively underwrites your personal obligations under the Minute of Agreement being making those obligations
a secured debt against the property. A copy of the Standard Security is attached for your information. Please read over the terms of the Standard Security and bring to our attention any matters which are of concern to you or which require clarification.
We also enclose Explanatory Notes on the legal effect of signing a Standard Security in Scotland for you to sign and return. This not only applies to the Standard Security which you will grant to the Scottish Ministers but also to the Standard Security which you will grant to the Primary lender.
By granting the Standard Security in favour of the Scottish Ministers you are also confirming that you will maintain Insurance against loss or damage to the property for the full reinstatement value. You must ensure that Scottish Ministers interest is noted on the Policy and that any excess does not exceed £100. A list of the risks to be insured against is provided in clause d(ii) of the Standard Security. Please note that we are required to produce a copy of your Buildings Insurance Policy to the Scottish Ministers agents and we would be grateful if you could forward this to us as soon as possible.
There is a further agreement which you are required to enter into with both Scottish Ministers and your Primary Lender. The Agreement is known as a Ranking Agreement and in essence ensures that the Primary lenders Standard Security will be given priority over the Scottish Ministers Security in the ranking of debt against your property. A copy of the Ranking Agreement is attached for your information. Please read over the terms of the Ranking Agreement and bring to our attention any matters which are of concern to you or which require clarification. The main points for you to note are as follows:
You are not allowed to grant any further charges over the Property without the written consent of both the Scottish Ministers and the Primary Lender.
You are consenting to the Scottish Ministers and the Primary Lender providing information to each other regarding you and your affairs.
Contact our Conveyancing Solicitors in Inverness, Highlands, Scotland
For more information on the help to buy scheme in Scotland, get in touch with one of expert conveyancing solicitors today. You can contact us via our online contact form or email [email protected]. To speak to a member of our team today give us a call on 01463 232 273.