Schemes to Assist Homebuyers Flashcards
Shared Ownership
- For low income clients
- Will be both a renter and owner
- Rent is lower than the additional mortgage would be
- Minimum percentage of 10%
- They can buy more percentages (called staircasing)
- The cost of new shares depend on the current market value
- Owner can sell back percentages if they are struggling financially
- When the property is sold each party gets their portion of the equity
- If selling the owner has to offer the sale to the housing association first before placing it on the open market.
SDLT with Shared Ownership
Two Options
1) Buyer pays SDLT on full price subject to usual rates with no further stamp duty payable when they buy further stakes
2) Buyer pays SDLT only once at the final stage of purchase. The final share must be reported to HMRC. Stamp duty is payable once 80% or more of the property is owned
Final stage SDLT calculation
Step 1. Stamp duty is calculated in the usual manner based on the total amount paid over time
- Each payment is added together then…
Step 2
SDLT total paid x amount of the last share/ full value of the property = stamp duty payable
EG
50% stake of £200k = £100k - below 80%, no SDLT
20% add stake = £40k (20% of £200k) below 80%
30% add stake = £60k over 80%
Step 1
SDLT on £200k = £1,500
Step 2
£1,500 x £60k/ £200k = £450 SDLT
Shared Ownership Leases
- Leaseholder only extends with 100% ownership
- Some landlords allow this earlier voluntarily
- SVC charge based on full property value
- These include care clauses, general standard terms and the format must be approved by the homes and communities agency (HCA)
+ Core clauses (restrictions)
- Max staircasing allowed
- Timeframe of the staircasing
- Eventual sale of the property
- No subletting is allowed
- The landlord has pre-emption rights that state if the leaseholder has not reached 100% ownership they must offer sale to the landlord or the nominated buyer at a set price valued by an independent valuer.
- If the landlord has not exercised pre-emption rights within 8 weeks the leaseholder can sell the property on the open market
- Landlord can pursue the leaseholder for possession for any unpaid rent through court
- In this instance the leaseholder will not receive any price gain on their share
Equity Share Scheme
- Can allow borrowers to buy property with a lender or developer
- The property belongs to the borrower from the start
- The borrower pays their deposit and gets a traditional mortgage on the agreed portion
- The scheme provider takes a stake in the property through a 2nd charge on the land registry (charges register)
- Often no interest is paid on the this, the company gets equity out when the property is sold or at the end of the term
Gov - Help to buy shared ownership
England
- Aimed at first time buyers
- Initial portion 25-75%
- Applicants cannot have a combined income over 80k outside of london or 90k in london
- Priority is given to armed forces personal where available housing is limited
Wales
- Income limit is £60k
- For first time buyers, divorcees or a move for work
- 5 year term to rent a home with the option to buy between 2-5 years
- When they buy they get 25% of the rent back
- They also receive 50% of the property value increase
Equity Loan H2B - England
- Help to buy a new build as a main residence
- The value of the home cannot be more than £600k
- Client cannot have another property that they rent out
- Capital Repayment only
- Only available until 2023
- Minimum 5% deposit and must be a new build
- The government loans up to 20% of the purchase price as an equity loan applied as a 2nd charge
- The loan is interest free for 5 years and then the interest will be
+ 1.75% for the next year
+ The fee rises with the CPI i.e. 1% the next year. e.g. if it’s 4% then it’ll go up to 5% so in year 7 it will be 1.84% - There is a £1 monthly admin fee
- Maximum term is 25 years
- The borrower can repay the mortgage early based on market value at execution
- The minimum repayment is 10%
- The equity share is paid back at market value at the time of sale
London Equity Loan H2B
- Up to 40% to max loan £240k
Equity Loan H2B Wales
- Limited property value of £300k
- Must prove they can only buy if using the scheme
- Available until 2021
Rent to Buy Gov
- Applicant income below £60k
- Borrower rents new property from rent to buy at 80% of normal rent
- Properties are usually 1-2 bed apartments
- Scheme allows them to build up a deposit to buy the property at a later date
Discount Starter Home
- Housing association and other builders bid for a share of low cost loans to build affordable housing
- For first time buyers between 23 & 40
- New builds with a 20% discount
- The price of the property must be below £250k or £450k in London
- Buyer cannot resell for 5 years
- Builders can be exempt from building affordable housing
Right to buy
- Tenants in council houses can buy at a discounted rate after minimum term - Housing act 1985
RTB England
- Get a discount if they are secured tenants for 3years
- Discount is 35% for a house or 50% for a flat until they have 5yrs of tenancy
- Over 5yrs they get an extra 1% for every year up to 70% if it’s a HOUSE
- Over 5yrs they get an extra 2% every year up to 70% if it’s a FLAT
- Monetary limit in London is indexed to CPI every year
If they sell within 5 years the repayment amounts are…
Yr 1: 100% of the discount Yr2: 80% of the discount Yr3: 60% of the discount Yr 4: 40% of the discount Yr 5: 20% of the discount After 5 years, no claw back
Calculation
% discount of sale price x % dictated by the year it was sold
Clawback is based on the CURRENT sale price
Right to Acquire
Similar to right to buy but a flat discount dependant on property location
Right to buy and right to acquire in Wales
Abolished in Jan 2018, tenants still had the option until Jan 2019
Preserved right to buy
- If tenant has secured tenancy and ownership changes, their tenancy is based on the combined tenancy.
Lifetime Mortgages
- For people without a mortgage at retirement
- Can use the equity in their for income at retirement
- Minimum age is 55
- Lender gives 25-55% of the property value
- Older clients receive more
- Lender gives an interest only loan with no repayment vehicle
- Interest rolls up and is added to the loan and received back at sale
- The lump sum is used by the buy an annuity to give them steady income
- Fixed rate of interest
- Customers remain homeowners
- Any equity leftover goes to beneficiaries
- If there is negative equity at the end the lender suffers the shortfall
Main Risks
- Life expectancy is longer and debt can roll up to high amounts
Capital Repayments
- Some lenders allow up to 10% in capital payment during the term of the lifetime mortgage to help reduce the debt. This is only useful if affordable
Drawdown - Lifetime mortgage
- Pre-arranged lending limit
- Borrower draw down what they need when they need it
- Interest only calculated on borrowed sum
Hybrid Scheme
Start as interest only with option to convert to roll up later
- Younger applicants can afford the payments
- Open ended
