Affordable Housing Schemes
New Affordable Housing Schemes 2016
As Scotland continued to recover from the property crash of 2007, there had been much speculation and Government forecasts that house prices were on the rise. It may be that Brexit will change this but it remains the case that there are still many of us who are struggling to get our foot on to that first rung of the property ladder.
In order to address this and to give those of us that need it, a "helping hand" to that first rung there are various Affordable Housing Schemes in place which aim to do just this.
The Scottish Government defines Affordable Housing as 'housing of a reasonable quality that is affordable to people on modest incomes' these include such schemes as:
Council and Housing Association properties / schemes;
Low Cost Housing Ownership, such as the Help to Buy shared equity scheme
These schemes are very attractive and would appear at first glance as though we are receiving "free" money to buy our dream home. However it is important that before we tie ourselves into any contracts that we have our eyes wide open as to what exactly we are taking on board.
Council New Build Programmes
These programmes aim to provide Low Cost Housing to potential purchasers by making property available at a discounted rate. They include houses marketed under an agreement made between the Council and a Builder, and you may have come across them either through the Council, or through the builder’s marketing process, or after seeking advice from an IFA. Some may have names such as “Golden Share”.
Discounted Rate you say? Where do I sign up!
However before you reach for your pen it is important that we look at what exactly is involved. For example, after setting up home you may find that your vision of your "forever home" has changed and you wish to move on. However purchasing under the Council New Build Scheme there are various restrictions and considerations in place should you wish to sell.
Implications to consider
The first step would be to notify the Council.
Ok I've done this- what happens now? Do I put my property up for sale?
No, you would now have to observe the “rules” of your particular agreement. For example, you may have to market the property for 13 weeks (or whatever other period you may have agreed to) at a discounted price AND you would only be able to sell to a purchaser of whom the Council approves and considers to be "eligible". The Council may also be able to set or have a say in the price at which you can sell and the amount of any “profit” you can keep.
You mentioned a Discounted Price, what is this?
The Discounted Price would be the property value minus the contribution that is provided under this scheme.
You would only be able to put your property up for sale on the open market, without restriction, should an eligible purchaser not be found within the initial agreed period, which might be lengthy or indefinite
Therefore if you are looking for a "quick sale" this would not be possible under this scheme.
Once the property is put on the open market, various provisions will come in to play to ascertain the "open market value" of the property. Therefore Fred along the road might have had his house valued and sold at £200,000 and even if your house would under normal circumstances be valued equivalently, under this scheme you would be required to sell at the discounted price for the first 13 weeks or other agreed period, which might be indefinite.
Also, and most importantly, should the sale go on to the open market you would be required to repay the discount to the Council.
This means that there is very little opportunity of any "profit" being made for you from the sale of your property as you would either be selling at a discounted value or selling at a higher value but having to pay back the discount.
Defaults which would give the Council the Right to Recall their security
Some schemes involve you granting a second standard security. In others the Council rely for enforcement on “small print” in your title deeds. For the purpose of this section both are referred to as the Council’s “Security”. There are many events which could result in a "default" on the security with the Council which would give them the right to call up their security e.g. require it to be repaid.
For example - if you no longer stayed in the property as your main residence, or where you made an incorrect statement to the Council.
Another circumstance could be where you have defaulted on the payment of your security with your primary lender e.g. Halifax, Nationwide etc. This is quite a hefty consequence that you may not have been aware of and which should be considered carefully before proceeding.
Your mortgage lender will probably be bound by the same rules which restrict your right to sell, should it have to sell under its security. Many lenders are aware of such schemes and have set out their criteria for acceptance. However as part of our duty to the lender we will require to report the details of your particular scheme to ensure that they are acceptable
Additional Fees Incurred
There is also the consideration of additional fees that will arise in carrying out the necessary requirements to complete the purchase. For example the Registration dues incurred with the Registers of Scotland for the Second Security (£60), Ranking Agreement (£60) and the Minute of Agreement (£10) and that does not include the additional legal fees.
McVey & Murricane's Approach
We appreciate that buying or selling property can be a very stressful time and we hope to take that stress off of your hands. Should you feel at any time that you are not quite sure what you are signing up to or that you require further information, one of our experienced and knowledgeable members of staff will be on hand to help deal with your concerns.
There are many such schemes and they may change from time to time. Thus the foregoing explanations are only illustrative of currently typical agreements and the details are to be found in your particular contract. Because of the importance of these contracts we do ask you to complete a form to confirm that you have understood the implications of the arrangement.