The new Help to Buy scheme went live in December, and buyers under the previous scheme have until 31 May 2021 to legally complete their purchase. Kathryn Taylor outlines how the schemes differ, and the actions solicitors need to take
The existing Help to Buy (HTB) scheme, launched in 2013, is coming to a close. Applications to enter the old scheme closed on 15 December 2020, and buyers now have until 31 May 2021 (following an extension) to legally complete their purchase. In its place, the government has launched a 2021-2023 HTB scheme, which went live on 16 December 2020.
The 2013-2020 scheme
You may have existing clients who have reserved plots using the old scheme. These plots could be pre- or post-exchange.
I would strongly recommend you speak to the builder’s solicitor now to check that they are confident the plot will be finished and ready for completion before 31 May 2021. Most builders should have factored this into their construction programme and sales strategy, but some construction schedules have been impacted by the coronavirus pandemic, and delays cannot be ruled out going forward. The old scheme will not be extended, and clients could get caught out if the deadline for completion is missed.
Submit solicitors forms to Help to Buy agents very early
I would add that the temporary reduction in stamp duty land tax (SDLT) rates also ends on 31 March 2021, creating, in effect, a double whammy of completions. With forecasters predicting a large spike in conveyancing completions, it will be absolutely essential to ensure that solicitor’s forms are submitted to local Help to Buy agents very early, and mortgage monies are ordered as far in advance as is possible. Should a client miss the completion deadline of 31 March 2021, they would not be permitted to complete after this date.
HTB agents have been operating throughout 2020 with very strict turnaround times for processing solicitor’s forms, so avoid submitting last-minute requests which the agents may not be able to process in time for completion.
The 2021-2023 scheme
On the face of it, the new HTB scheme seems to mirror the previous HTB equity loan scheme. The scheme is once again limited to new-build properties, and enables buyers to purchase with a deposit of as little as 5%, with the remaining deposit (up to a maximum of 20%, or 40% in London) being provided by the government by way of a secured second loan.
The two most notable differences with the new scheme are the significantly lower property price bandings, and the types of buyer who can take advantage of the scheme.
For eligible properties, the price bandings are shown below. The previous scheme was available on any new build with a purchase price of up to £600,000.
|Maximum property price
|Yorkshire and the Humber
|East of England
Whereas the previous scheme was open to all buyers of new builds, the new scheme is only available to first-time buyers. A buyer must not (either alone or with others) have previously acquired via a purchase, gift, trust or inheritance a major interest in a dwelling situated anywhere in the world, or have had Sharia mortgage finance.
The loan scheme
As with the scheme before, HTB does add an additional layer of complexity to the conveyancing process.
The loans will once again be administered by local HTB agents, and clients will apply for acceptance on to the scheme using a special form (often known as a property information form). The application process takes place without any solicitor involvement, but clients should take independent financial advice.
The loan can be for up to 20% of the full purchase price (40% in London), and will be for 25 years.
Solicitors will receive a pack via email containing the:
- HTB equity loan document
- authority to proceed (ATP) and personal worked example
- solicitors guidance notes
- solicitor’s form 1
- solicitor’s form 2
- confirmation of exchange form.
Solicitors who are unfamiliar with the scheme should start by reading the guidance notes carefully, followed by solicitor’s forms 1 and 2, which contain undertakings they will be bound by.
The latest guidance is available on the HTB website.
1. Ensure the ATP is correct
The full names (including middle ones) of all purchasers should be quoted correctly, as well as the property address and all of the financial details. The ATP should be cross-checked against the following.
It is a scheme requirement that the builder has a specific contract for HTB purchasers. Ensure that the financial details shown in the contract correctly reflect the details shown in the ATP.
The mortgage offer
The ATP will show a qualifying mortgage amount, and this must match the loan amount in the offer. You should also ensure that all other details in the offer (such as names and property addresses) match the ATP. The existence of the equity loan should be reported to the lender, unless it is clearly shown in the offer.
The UK Finance Disclosure Form
It is a condition of the HTB scheme that all incentives (financial or otherwise) are disclosed as part of the process. The ATP will detail the incentives that have been disclosed. You should cross reference this with the UK Finance Disclosure Form, reservation form and any other information the clients have supplied to you, to ensure that all incentives have been correctly disclosed and are shown on the ATP
2. Review the solicitor’s forms carefully prior to submission
Solicitor’s form 1 contains detailed undertakings, and if accepted, will result in an authority to exchange being issued to you. Solicitor’s form 2 also contains undertakings, and is used to obtain an authority to complete. It goes without saying that you cannot exchange or complete without being in possession of these authority forms from the local HTB agent. Prior to submitting any forms to the local HTB agent, check them very carefully to ensure all the details are correct. HTB agents are working to very strict turnaround times, and where an amended form is requested, the corrected form is likely to be treated as if it has just been submitted for the first time, with the usual turnaround times applicable. Completion dates can be missed if a revised form is requested and the authority to complete is not issued in time.
3. Give clear advice
The equity loan should be treated like any other loan / mortgage, and clients should be given clear legal advice on what they are entering into. I would recommend that any advice given is followed up with a detailed advice letter. Clients should be advised to read the homebuyers’ guide, which has been designed with them in mind and to answer any questions they may have on the scheme.
A common misconception with clients is that they think their loan is fixed to the original amount, rather than a percentage of the market value at the point of sale. It is important to dispel this myth and highlight that when they do come to sell, a valuation process will need to be followed, alongside the submission of a number of forms to obtain a redemption figure. Clients should be warned that if the value of their home rises, the amount they will owe will also rise.
Highlight very clearly to clients when interest starts to be payable in relation to the loan (from year six, and it will rise every April in line with the Consumer Price Index plus 2%), that the payment of interest does not reduce the amount owed, and that there are numerous covenants that they will be bound by (that can be found in the equity loan document).
4. Request your client’s valuation report
Your solicitor’s form 1 must be accompanied by a copy of your client’s valuation report. A lot of mortgage offers often don’t contain a copy of the valuation, which means you will have to revert to either the lender or the client to obtain a copy. Waiting for a copy of the valuation often causes delays, and it is always best to request a copy from the client as early as you possibly can in the transaction.
5. Check the warranty type
The property must have an NHBC or equivalent warranty – architects’ or professional consultant certificates are not acceptable.
6. Check the planning conditions have been satisfied
Under the new scheme, solicitors are required to check that all pre-commencement and pre-occupation planning conditions have been complied with prior to practical completion. In order to identify any breaches, it will be essential that a local search has been carried out on the file. Homes England does recognise that it can take some time for local authorities to issue written confirmation that planning conditions have been satisfied, and/or that some don’t get written confirmation at all (such as becoming party to a highways agreement). If written conformation is not available, the following is acceptable.
- The developer has applied for written confirmation that the pre-commencement and pre-occupation planning conditions have been satisfied.
- The developer is in the process of putting in place any infrastructure agreements.
- The pre-commencement and pre-occupation planning conditions have been satisfied.
- The developer has entered into a deed of indemnity with the purchaser.
7. Obtain your client’s identification documents and source of funds information
Under the new scheme, certified copies of these documents must accompany the solicitor’s form 1.
8. Ask the client to complete the first-time buyer declaration and direct debit forms
Both of these must accompany your solicitor’s form 1. Blank copies of the forms are available on the HTB website.
There is an onus on the solicitor to advise the client on the contents of the first-time buyer’s declaration and the consequences of making a false declaration.
Both the new HTB scheme and the old scheme add an extra layer of legal and administrative complexity to the conveyancing process. To prepare: know the scheme, be clear on your timeframes, ensure you have all the paperwork you need from your client, and submit your forms to the HTB agent as early as you possibly can.