Following on from the launch of the new First Home Fund, Harper Macleod held a special briefing for solicitors who regularly act for shared-equity scheme purchasers.
What is the First Home Fund?
The First Home Fund is a £150 million national pilot scheme to provide first-time buyers with up to £25,000 towards the purchase of a home. It will run until March 2021, helping at least 6000 people buy their first home.
Running alongside existing shared equity schemes, it aims to help first-time buyers purchase a property that meets their needs and is located in the area where they want to live.
Harper Macleod was appointed to carry out the legal work related to the scheme on behalf of the Scottish Government. The scheme is being administered by Link Homes.
The Briefing covered the main aspects of the scheme and answered key questions from practitioners about its operation.
For those who were unable to attend, here are some of the First Home Fund Facts, and questions and answers from the briefing session.
The key elements of the First Home Fund are:
- Open to first-time buyers - those who have not previously held title to a property. Where joint applicants apply, only one must be first time buyer, but financial assistance will be awarded per property purchase.
- No means testing aside from a sustainability assessment and no price cap on properties.
- Scheme will support the purchase of new builds and existing homes.
- Offer will have been accepted on a property before an application may be made.
- Buyers will be required to take out a mortgage - minimum mortgage requirement of 25% of the purchase price.
- Buyers will also have to fund a minimum of approximately 5% of the value of their new house as a deposit subject to any primary lender requirement.
- Scottish Government contribution will be secured on the equity of the home; is repayable in full at any time; and must be repaid if the home is sold. No monthly payments or interest will apply.
- The new scheme is to run in conjunction with the current shared equity schemes, but applicants will not be able to benefit from another Scottish Government shared equity scheme to support the same home purchase.
- People will be able to combine contributions from the UK Government’s Help to Buy ISA or the Lifetime ISA (which do not have to be repaid to the UKG) with support from this scheme, as is the case for existing shared equity schemes.
- All buyers must reside in the house as their main residence. There is a corresponding prohibition on letting, lodgers, sharing occupation etc.
- Scottish Ministers equity stake will be no more than 49%.
- All applicants will be charged an administration fee of £550.00 upon application to the scheme. This will be refunded if the application is unsuccessful.
You can find out more on the Scottish Government website here: https://www.gov.scot/policies/homeowners/first-home-fund/
Questions and answers from solicitors
What is the buyer's fee?
£550 – to be paid as early as possible in the process after the Letter of Award is issued but must be paid three weeks prior to settlement. Refundable if the transaction does not proceed for any reason (with the exception of fraud). There is a link on the Award Letter for the purchasers to allow payment by way of Card.
Is Builders Part Exchange allowed?
No, however, assisted sale schemes offered by Builders are allowed.
Is there any scope for the extension to the 6 month deadline, mainly for new build?
This will be looked at on a case for case basis dependent on circumstances. It is expected that a degree of discretion will be applied and purchasers should keep in touch with Link.
Is there any limit on Builders' incentives?
When sending Solicitor's Confirmation Letter are we warranting that we have the Mortgage Offer? If the loan amount is known can we simply narrate that in the absence of an actual Mortgage offer?
Only if you are comfortable to do so, with the information that you have. However, if the Primary Lender loan amount changes you must contact Link Homes immediately as the Award amount and feasibility calculator could change.
Are Gifted Deposits allowed?
Yes provided the Primary Lender is aware of this and happy to proceed.
Does the Home Report require to be refreshed?
There is no Scottish Government requirement for a refresh if the Home Report is 6 months or older at date of settlement. The assessment of whether the valuation (HR) is still "current” happens at the point when the seller receives the offer. However, it should be noted that lenders will have their own requirements in relation to the age/vintage of the valuation/HR/Scheme 1 etc.
Could Builder's Solicitors be copied into the Award Letter?
Due to Privacy Notice and Data Protection the Builder's Solicitors will not be copied in. Link will however amend their email to signpost the purchaser/purchaser's Solicitors advising them to contact the Builder to make them aware of the expected timescales.
Missives Clauses – should Builder's missives contain a clause re First Home Funding being obtained?
This would be a matter between the Purchaser's Agents/Seller's Agents or Builder's agents. On the timing it is thought that a decision on an application for funding should be within 5 working days. It is not thought that the process would be any different from the Primary lender process that is specific to FHF funding.
New Build – what happens if missives concluded but completion delayed beyond the six months?
This is a matter for purchaser and Builder's Solicitors to sort out. Same as 9 above.
Question re funding - if the application runs over the financial year do they need to re-apply?
We would not ask applicants to re-apply if the application runs over the financial year 2019/20 into 2020/21 - however each application has to have been settled by 31 March 2021
More in line with OMSE timelines i.e. ideally four weeks' notice to have the relevant information to facilitate the money being booked in.
Do Link need to see a copy of Mortgage Offer as they do with new build/ HTB?
Link looking into this. TBA
I note that there is a requirement for a section 11 Notice for FHF but not for the other schemes.
That is correct the Scottish Government intends to make an order pursuant to section 11 (3D) of the 1974 Act to remove the right to redeem securities after 20 years for those participating in the First Home Fund scheme. Until that order is in place there is a requirement to issue the section 11 Notice.