Helping solicitors on Help to Buy
With numerous house purchases now approved under the Help to Buy (Scotland) scheme, this article provides a step-by-step guide to completing the transaction
In September 2013, Deputy First Minister Nicola Sturgeon announced that the Scottish Government was allocating £220 million over three years to the Help to Buy (Scotland) shared equity scheme. This total funding commitment has since risen to £275 million.
Since its launch in Scotland there have, to date, been 3,749 approvals (“authority to proceed letters”) issued to eligible buyers, and 1,220 confirmed house purchases.
The Scottish Government has appointed a number of agents for the purpose of administering financial support to purchasers, including issuing legal instructions to purchasers’ solicitors and collecting all payments due, including redemption payments. This means that the purchaser has one nominated point of contact for the shared equity documentation which governs Government financial support.
Currently, there are four agents who will administer the scheme on behalf of the Government: Albyn Enterprises, Inverness; Grampian Housing Association, Aberdeen; Link Homes, Falkirk; and Orkney Housing Association, Kirkwall.
If a solicitor has not previously dealt with a purchase through the Help to Buy (Scotland) scheme, hopefully this article will help familiarise you with the way it is intended to work.
The scheme is open to those wishing to buy a new build home from participating home builders. The home must be a buyer’s only residence and they must not own another home.
The Scottish Government’s contribution will represent up to 20% of the total purchase price of the house being acquired (the percentage being defined as the “contribution percentage”). The full purchase price must not exceed £400,000, so the maximum Government contribution will be £80,000.
On a purchase under the scheme, the house builder receives the full purchase price from the purchaser at settlement. For the purposes of the contribution percentage, any mortgage fees charged by the primary lender are ignored. The purchaser’s solicitor will be expected to provide the administering agent with verification of the total purchase price payable and the amount of the first loan. The agent calculates the contribution and the contribution percentage, and notifies these to the purchaser, Scottish Government and selling home builder, via the authority to proceed letter.
The obligation to make repayment to the Scottish ministers has to be secured on the property by a second ranking standard security, which must rank immediately behind the loan from the qualifying lending institution providing a conventional mortgage for a sum up to the remainder of the purchase price. A ranking agreement is also required in the Scottish Government’s preferred form to regulate the ranking of the two standard securities.
Harper Macleod has been appointed by the Scottish Government to prepare the shared equity documents which regulate its equity stake, including the postponed security.
In each transaction the purchaser will instruct their solicitor in the normal manner and enter into the appropriate contract or missive with the builder’s solicitors. To avoid unnecessary duplication of work and to reduce costs for purchasers, the purchaser’s solicitors will be asked to act for and extend a duty of care to Scottish ministers in relation to title and other matters, in terms of the standing instructions issued by the agent.
Given that in almost all cases the purchaser’s solicitors will also be acting for the primary lender, the Government’s standing instructions have been designed not to be any more onerous on the purchaser’s solicitor than the instructions they will receive from the primary lender. The process of receiving instructions will depend on the geographical area in which the property is situated, but the instructions will be issued either in hard copy or by email.
The process – step by step
David McIndoe and Derek Hogg, partners, Harper Macleod LLP
Further information on the Help to Buy (Scotland) scheme, full standing instructions to solicitors and a list of participating lenders and builders can be accessed at www.scotland.gov.uk/housing/help-to-buy
- A potentially eligible purchaser contacts their local administering agent or the participating registered homebuilder who is selling the property.
- The purchaser completes a Help to Buy (Scotland) application form as well as the builder’s reservation form. The builder sends the application form and a copy of the reservation form to the agent. The purchaser pays a reservation fee, if required, to the builder and is given details of the builder’s standard arrangements for the negotiation and conclusion of missives. The application form cannot be submitted to the agent more than nine months prior to the anticipated date of completion of the sale of the house.
- Within five working days of receipt of the fully completed application form and signed reservation form, the agent issues the authority to proceed letter (ATP) to the purchaser, the purchaser’s solicitor, the builder, and the Scottish Government’s solicitors. At the same time, the agent issues legal instructions and an information pack to the purchaser’s solicitor. The ATP is valid for three months or such other date as is agreed by the agent, during which time conclusion of missives between purchaser and the builder must occur.
- The purchaser’s solicitor prepares the Solicitors Form 1 (which is used to verify and check that the main terms of the proposed transaction are accurate and consistent) and returns this to the Agent, with copies of the mortgage offer and CML disclosure form. Purchasers’ solicitors should submit the Solicitors Form 1 as early as possible to the agent, and certainly well in advance of submission of their certificate of title (see below).
- Within five working days of receipt of the Solicitors Form 1, the agent confirms to the Government’s solicitors whether the information received from the purchaser’s solicitor is correct in relation to the purchaser’s application.
- Within five working days of the necessary information being received via the agent, the Government’s solicitors issue legal documentation to the purchaser’s solicitor for signing and return. The purchaser’s solicitor arranges for the documentation to be signed by the purchaser and, in the case of the ranking agreement, by the purchaser’s primary lender.
- The purchaser’s solicitor then completes a certificate of title in the form required by the standing legal instructions (once normal title checks have been undertaken in accordance with those instructions), and submits this to the agent.
- Once the paperwork is in place, the amount of Scottish Government financial support is sent by the agent to the purchaser’s solicitor, who then settles the purchase transaction using those funds plus the purchaser’s home loan and any funds being contributed by the purchaser. The purchaser’s solicitor then presents the disposition, both standard securities and the ranking agreement for registration.
- Note that if the ranking agreement is unavailable at settlement, the Scottish Government’s solicitors can accept an undertaking from the purchaser’s solicitor to deliver same within an agreed timescale. Such an undertaking is only granted on behalf of the lender and should not therefore prove troublesome for purchasers’ solicitors.