help to buy pdfs/presentations... · if properties are repossessed, pecking order is mortgage...

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

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?

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

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

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)

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

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

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

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

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)

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

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

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

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

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

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

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

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)

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

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)

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

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

What do commentators think?


What do you think?


help to buy pdfs/presentations... · if properties are repossessed, pecking order is mortgage...

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