A helping hand

Help to Buy, introduced in April 2013, comprises two separate schemes designed to assist buyers in purchasing properties. The first is the Help to Buy equity loan, which enables buyers to purchase new-build properties with a deposit of as little as 5%, with the remaining deposit (up to a maximum of 20%) being provided via a secured second loan, which is interest-free for the first five years. The second is the Help to Buy mortgage guarantee, which enables buyers (regardless of their income) to buy a first home, which can be newly built or existing, with a deposit of 5%, if the property’s purchase price is less than £600,000, and the property will be used as the buyer’s own home.

I would anticipate that solicitors will have little involvement in the guarantee, other than checking the Help to Buy mortgage offer and ensuring compliance with any conditions attached to the mortgage which relate to the mortgage guarantee. I therefore concentrate in this article on the loan scheme.

The loan scheme

The Help to Buy equity loan scheme undoubtedly adds complexity to the usual conveyancing process. Solicitors are effectively dealing with a second lender, and will not only need to follow the usual lender procedures, but also ensure compliance with the specific conditions of the scheme. Any solicitor contemplating advising a client on the scheme should download the Help to Buy Buyer’s Guide, available from the Homes and Communities Agency website (www.homesandcommunities.co.uk/help-to-buy).

The loan scheme is administered by local home buy agents, who operate the scheme in that area on behalf of the Homes and Communities Agency. Clients apply to the scheme using the Help to Buy Property Information Form (often called a PIF form), and are then subject to detailed assessment by the local agent. Solicitors should be familiar with who operates Help to Buy in their local area.

Local agents are increasingly using email as the conduit for issuing the solicitors with the Help to Buy solicitor’s pack. The pack should contain the following:

• Help to Buy equity loan;
• authority to proceed;
• personal worked example;
• solicitors guidance notes – including the Buyer’s Guide and Lender’s Guide;
• Solicitors Form 1; and
• Solicitors Form 2.

Solicitors unfamiliar with the scheme should start by reading the guidance notes. They should then study Solicitors Forms 1 and 2, which need to be submitted to the local agent at exchange and completion. The undertakings noted in these forms highlight what is expected of the solicitor, what information needs to be gathered, and the relevant timescales for doing so. Making a checklist of documents required and timeframes involved would be useful at this point.

Practice points

You must apply for authority to exchange from the local agent prior to committing the client to the contract. Below are the five key steps you need to complete.

1. Take care

The first step is the authority to proceed document, which shows the basis upon which the client has been accepted onto the scheme. The document is valid for a period of three months; you must ensure that authority to exchange is applied for during this three-month period. Check this document carefully, to make sure it is fully reflective of all buyers (if a buyer isn’t noted on the authority to proceed, then they aren’t on the scheme), states full names (including any middle names), and includes the correct property address and price. The authority to proceed will give details of any incentives that have been disclosed to the local agent; check these are correct.

The best advice I can offer to any solicitor is be prepared before the paperwork arrives and read the scheme guidance now

The authority to proceed document also makes reference to a “requisite amount of cash savings to be invested by the buyer”. Confirm with the client that this amount will be available on completion and obtain documentary evidence from the client as early as possible, showing that the funds are available and belong to the client.

2. Be clear

Brief the client fully on the equity loan, its terms, conditions and implications. In many ways, this is no different to advising a client on a mortgage. Working through the loan document in person with the client is possible, although I would advise following this up with a full letter of advice to the client, which could be kept for future reference. Always direct clients to the Buyer’s Guide, which has been specifically designed with buyers in mind, and ask them to read it through carefully; be prepared to answer any questions which arise. Make it clear to the client that the equity loan is not limited to the amount initially borrowed, and is instead a fixed percentage of the market value of the property at the time when the loan is repaid. Other conditions such as interest, covenants and the conditions which will trigger a sale should be highlighted to the client. Clients should also be aware that remortgaging their property at a later date would trigger repayment of the loan.

Send the client a copy of the personal worked example, for their records. This is a breakdown giving estimates of the interest payable and the repayment amount on a sale. Point out that the example is merely an estimate, and should be used for reference purposes only, as both the interest and the final payment could be larger or smaller.

Advise the client to obtain a copy of the mortgage valuation report. Mortgage valuations are rarely sent to solicitors, and the valuation report is required to obtain authority to exchange.

Check if an adult occupier will be residing in the property; if this is the case, an occupier’s consent form (available from the local agent) will need to be signed in addition to the first lender’s usual form.

3. Deal with errors

Obtain a Council of Mortgage Lenders (CML) Disclosure of Incentives form from the builder’s solicitor, and cross-reference it against the authority to proceed. Identify and correct any discrepancies. You will also need a copy of the CML form to apply for authority to exchange.

When the mortgage offer arrives, this too must be cross-referenced with the authority to proceed; make sure they match exactly. Any variation in purchase price, client names or addresses must be corrected prior to any request for authority to exchange. Increasingly, we are seeing lenders opting not to issue new mortgages to correct a discrepancy, and instead issuing a letter. It is always better to have a correct offer attached to the Help to Buy paperwork, but if the lender refuses to issue a new offer, a copy of the old offer and the letter acknowledging the error should be sent to the local agent instead.

Upon receipt of the offer, the lender should be contacted in writing regarding the scheme, and approval should be sought to the terms of the secured second loan. Under the terms of the scheme, you must also supply the lender with the lender’s guidance notes (found in the solicitor’s pack). You must also apply for written confirmation from the lender confirming that further advances will not be made to the borrower throughout the term of the mortgage.

4. Apply for authority to exchange

Once all documents are signed and information collected, you should be in a position to apply for authority to exchange. A Solicitors Form 1, addressed to the local agent, is used to apply for authority to exchange, and it should be accompanied by the mortgage offer, valuation report and CML Disclosure of Incentives form. Form 1 is a solicitor’s undertaking, and is therefore enforceable. The form must be printed on letterhead and you must specify when exchange is due to take place. It is permissible to say ‘within x days’, rather than tying yourself to a specific day. Once authority to exchange is granted, you are free to exchange in the normal way.

5. Finish the job

Once a completion date is agreed, submit Solicitors Form 2 to the local agent. Again, this is a form of undertaking and does contain a certificate of title. After completion, you will need to send certain other documents to the local agent (copy of the title, legal charge, deed of priority); these are detailed in Form 2. Submission of the post-completion documents is time-sensitive and can cause issues for the solicitor in the event of a delay at Land Registry. Keep the local agent informed of any delays beyond your control.

Get prepared

Solicitors wishing to undertake Help to Buy work should ensure that they are fully familiar with the scheme, the documents and the timescales involved. The scheme adds an additional layer of administration and legal complexity to the conveyancing process. Clients will expect their solicitor to be familiar with the scheme and able to offer guidance and support. Some solicitors are charging their clients for the additional time and paperwork involved in a Help to Buy transaction, although at this stage, I haven’t seen many solicitors adopt this approach.

The best advice I can offer to any solicitor is be prepared before the paperwork arrives and read the scheme guidance now.