Help to Buy Housing and Development Consultants
Help to Buy Scope of Help to Buy 1 Scope of Help to Buy 2 Principles of the scheme Advantages for the developer Advantages for the consumer Process Registration as a Provider Which properties are eligible? Which individuals are eligible? Finding a property Valuations, CML, mortgage requirements Housing and Development Consultants
Help to Buy Role of Help to Buy Agents Arrangements for London The role of the purchasers’ solicitor Conveyancing process Post-sales administration What happens if properties are repossessed? Strengths and weaknesses Likely take-up Help to Buy 2 What do commentators think? What do you think? Housing and Development Consultants
Scope of Help to Buy 1 £3.5billion over 3 years (April 2013 to March 2016) – more than the HCA ADP for 2011 to 2018 74,000 estimated completions (so £47,300 each, more than double the grant rate per unit for the ADP) Applies to all newbuild properties under £600k where developer has registered Applies only to England Property sales must be complete by March 2016 No additional property quality standards Equity loan scheme Housing and Development Consultants
Scope of Help to Buy 2 To be introduced in January 2014 (although applications can be made now) Primarily aimed at second-hand properties although new properties are eligible Value limit of £600k Mortgage guarantee scheme – insurance policy for slice of equity between 80% and 95% Estimated £12bn guarantees funding £130bn of mortgage finance Widely criticised by economists for potentially promoting a property bubble Housing and Development Consultants
Principles of the scheme Equity loan scheme with HCA providing 20% of the finance Customer provides 5%, mortgage lender 75% Loan is interest free for first 5 years, thereafter 1.75% p.a. (index-linked) Any developer can register – minimum scheme size is 1 unit, no maximum Designed to meet developer’s needs Aimed mainly at first time buyers (although second- time buyers also eligible) Housing and Development Consultants
Advantages for the developer Gives access to first-time buyers (who only need a 5% deposit rather than up to 20%) Minimal procedural and property requirements Works with existing mortgage criteria (NHBC, CML incentives rules, etc.) Not restricted only to large developers No cash input required (unlike FirstBuy) No continuing contract with the buyer Allows increased prices (or reduced discounts Housing and Development Consultants
Advantages for the consumer Allows access to new homes with 5% deposit (rather than up to 20%) No additional requirements other than normal mortgage criteria Simple qualification criteria – designed simply to prevent outright abuses of the system Housing and Development Consultants
Administrative Process Registration as a provider Conditions precedent Administration Agreement Identification of properties Approval by Help to Buy Agent Exchange, completion and cash Post-sales administration Housing and Development Consultants
Registration as a developer Any developer can register Registration only applies to properties for sale on the open market (i.e. not shared ownership) Simple factual form with minimal programme details Application is to HCA at Maple House Housing associations register as with any developer Developer must sign Administration Agreement – effectively the HCA/developer contract Conditions precedent mainly concern money-laundering and Consumer Credit Licence Housing and Development Consultants
Which properties are eligible? Any newbuild property in England sold for less than £600k (provided developer is registered) Must have NHBC, Premier, or equivalent Sales must be completed by March 2016 Homes developed to meet s.106 not eligible Must have planning and building regulations consent Rehabilitated properties are eligible, but must not have been previously occupied (so house conversions are not eligible, offices to flats are) Housing and Development Consultants
Which individuals are eligible? First or second-time buyers only Must be principle residence (so second-time buyers must sell first home) Buy-to-let investors and second home buyers not eligible No absolute income rules, but applicants must be able to afford mortgage (maximum of 45% of net income available for housing costs) No local connection rules, and no local authority involvement Assessments made by Help to Buy agents Housing and Development Consultants
Finding a property Developers offer properties through Help to Buy on the open market Customers access them direct Also advertised on Help to Buy Agents Websites Customer reserves plot and pays reservation fee (must not be >£500) Housebuilder sends Property Information Form to Help to Buy agent for approval Housing and Development Consultants
Valuations, incentives, mortgages Valuations must equal property sale price Customer must contribute 5% (minimum) deposit HCA contribute 20% (maximum) as equity loan Developer must comply with CML Disclosure of Incentives form (and incentives must not > 5% in any event) Part-exchange properties must not be involved in the process Mortgage must be repayment; interest only is not permitted Housing and Development Consultants
Role of Help to Buy agents Help to Buy Agents each administer separate area of England – list on the HCA Website Generally the same as Homebuy Agents (except in London) Role is to approve each transaction, approve each purchaser, and process payments (through IMS) Also HtB Agents disseminate information about the scheme and may advertise properties for developers Paid by the HCA and not developers Housing and Development Consultants
Arrangements for London London arrangements follow replacement of Housing Options (Metropolitan and L&Q) as Homebuy Agent by SharetoBuy in April 2013 As GLA SharetoBuy do not have resources to run Help to Buy, responsibility for administration is delegated back to the HCA HCA has delegated responsibility to Moat and Lea Valley Homes (part of Aldwyck) although neither are based in London Moat responsible for 11 South London boroughs, Lea Valley Homes for the remaining 21 Arrangement is temporary to be reviewed in April 2014 Housing and Development Consultants
The role of the purchasers’ solicitor Purchaser’s solicitor has crucial role Effectively acts as the HCA’s solicitor Carry out checks on the property similar to normal conveyancing checks Register HCA’s equity loan as a second charge Generally verify all details (such as purchaser’s identity) Generally liaise with the Help to Buy agent Housing and Development Consultants
The Conveyancing Process Property Information Form submitted to Help to Buy Agent by developer HtB Agent issues Authority to Proceed (valid for 3 months) to purchaser’s solicitor Buyer instructs IFA to make full mortgage application Valuation carried out and mortgage approved Solicitor applies to HtB agent for approval to exchange Solicitor exchanges contracts (must not be >6 months before completion) Sale completed and charge registered in HCA’s favour Housing and Development Consultants
Post-Sales Administration Post-sales administration administered by Post-Sales Agent on behalf of HCA Equity Loan must be repaid on sale of property or after 25 years. Repayment is for 20% of value (but some may be written off if prices have fallen) Rental fee = 1.75% of loan from year 6, increasing by RPI + 1% thereafter Customer can staircase at any time voluntarily Further advances not allowed No redemption fees (other than admin costs) Housing and Development Consultants
What happens if properties are repossessed? If properties are repossessed, pecking order is mortgage lender first, HCA second, customer third So if a £200k property falls in value to £160k, mortgage lender will get £150k (75%), HCA £10k, customer 0 Similar rules exist if properties sold whilst in negative equity HCA will not chase customers for the write-off amounts as long as they have complied with mortgage terms Housing and Development Consultants
Strengths and weaknesses of Help to Buy No direct investment in housebuilding Removes high deposit block for first time buyers Uses existing newbuild sale mechanisms No affordable element as such May increase housebuilding in some areas Almost certain to increase prices (or reduce discounts) To some extent self-financing (through repayments tied to market movements ) Housing and Development Consultants
Likely take-up Estimated 10,000 reservations and 2,000 completions to September 2013 Differing pattern of regional take-up (mainly outside London) Too early to say Help to Buy 2 may be a competitor for Help to Buy 1 Housing and Development Consultants
Help to Buy 2 Launched at Conservative Party conference Sept 2013 but officially starts January 2014 No HCA or social housing involvement Mainly state-owned banks participating to date May not be obvious to customers whether a property is within Help to Buy system or not Housing and Development Consultants
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