8  Processing the Sale

8.1 General

8.1.1  It is not the Homes and Communities Agency’s intention to be prescriptive as to the sales process, administration and timescales involved.  In the interests of efficiency we would suggest that RSLs take steps to identify serious purchasers and minimise unnecessary administration. We therefore recommends a two stage sales process to determine eligibility (of both the tenant and the property) and then the calculation of the sale price and the discount payable. Please follow the asterisk for guidance  

 

8.1.2 The first stage is to provide ‘broad brush’ information to enable the tenant to make an informed choice as to whether to proceed or not with their application based on affordability and sustainability criteria (Stage 1A).  

 

8.1.3  If they wish to proceed the RSL will check whether the property is eligible to be bought, and confirm the tenant is eligible for SHB (Stage 1B)  

 

8.1.4 Stage 2 involves the calculation of the sale price, the equity to be purchased, and the discount entitlement based on the formal mortgage offer, together with the associated costs and provisions that will be the basis of the formal offer and will appear in the contract documentation. At this stage the RSL will be required to undertake an affordability check based on information provided by the tenant in the 'intention to proceed' notification. See suggested notification at 8.5.6.

8.2 Discounts

8.2.1 Discount are available on the initial purchase and on subsequent  shares purchased pro- rata to the percentage of share being purchased.  Purchasers are not entitled to more that the maxium discount available for the locality in which they are purchasing. The RSL must therefore clearly set out the advantages and disadvantages of buying a share in the property to the applicants.

For a worked example follow the asterisk  

 

8.2.2 For additional shares purchased before April 2008 no further discount was payable.

 

8.3 The Tenant’s Application

8.3.1  A formal application for SHB must be made by the tenant in writing.  The application must be completed by the tenant(s) and returned to the landlord. For a comment follow the asterisk  

 

8.4  The RSL Response 

8.4.1  RSLs must encourage purchasers to buy the maximum share they can afford AND sustain. For further Guidance follow the asterisk   

 

8.4.2  RSLs must formally respond to all applications. Eligibility checks are not required at this stage and the RSL can provide indicative cost and discount information based on the assumption that tenant is eligible.  The information that must be provided at this stage is: 
 
• an indication of the value of the property to be sold.  At this stage a formal valuation is not required but can be based on comparative house price details from appropriate websites, such as Hometrack (http://www.hometrack.co.uk), Up my street (http://www.upmystreet.com/) or local estate agents’ particulars. By using a web based assessment tool to determine the actual, or an approximate, house price valuation, costs can be confirmed or minimised at this point for both the RSL and the potential purchaser should they decided not to proceed.
 
• the total cost of purchasing a share and how it is calculated. For worked examples click here  

 
• the total amount of discount applicable at that time in that location;
 
• the total rent payable on the property;
 
For an example letter follow the asterisk  

 

8.4.3   If the tenant confirms that they wish to proceeds, the RSL must determine the tenant's eligibility by checking:

• the application form has been correctly completed and signed and dated by the tenant(s);
• the tenant(s) are secure or assured (NB: assured shorthold or long leaseholders are excluded from the SHB programme);
• the property is not in an exempt category;
• the tenant(s) has been a public sector tenant for the appropriate two or five year period;  [see section 4]
• where the property is charged to a private lender the lender is willing to release their charge;
• whether there is an effective possession order;
• whether the tenant is the subject of a suspension order, para 4.4).
• the tenant has certified in the application that he/she is not an undischarged bankrupt;
• whether the tenant or co-purchasers have previously received a discount to purchase a property from a public sector landlord. Follow the asterisk for more details.  

 

8.4.4 Where the tenant and the property meets the eligibility criteria for the programme the landlord may offer to sell an alternative property to the one the tenant occupies.  In such circumstances the tenant must be made aware there is no obligation placed on them to accept an alternative property and they may proceed to purchase their current property if they so wish provided it is included in the programme.

8.4.5 There may be circumstances where the landlord wishes to offer an alternative  property where the tenant is eligible but the property they occupy is not.

8.4.6 The RSL should only consider offering an alternative property if the property is a naturally occurring void; the RSL is not permitted to deliberately keep properties vacant for sale under SHB or offer new Grant aided properties built under any other programmes.

8.4.7  On completion of the checks the RSL must respond to the tenant either confirming or denying eligibility stating reasons. A standard response letter should be used detailing the terms of the sale. For an example  stage 1B letter follow the asterisk.  
 
 

8.4.8 The letter and information must be sent to the tenant within 4 weeks from receipt of the initial application.

8.5 Tenant’s Acceptance

8.5.1 Following confirmation from their landlord that they are eligible to proceed the tenant has 4 weeks in which to confirm they wish to proceed to stage 2 of the purchase process, when a formal valuation is obtained.

8.5.2  The RSL has discretion to extend the period for responding if there are reasonable grounds for doing so.

8.5.3 Where the number of stage 2 applications received exceeds the PG available to them  the RSL must operate a waiting list and should prioritise applications e.g. based on the tenant’s length of tenancy with their current landlord.

8.5.4  The criteria to be used must be appropriate to the circumstances and indicated in the published policy statement.

8.5.5  If the tenant still wishes to proceeds the RSL must make a formal offer to the tenant (Stage 2 letter), including the following information:

• the value of the property to be sold; 
• the total cost of purchasing a share  and how it is calculated;
• the total amount of discount applicable at that time in that location;
  the total rent payable on the property;
• an estimate of the annual service charge/including sinking fund contributions (see RTA section 4.8).

 

8.5.6 The RSL must ensure that the offer and acceptance are Subject to Contract, are in writing and that the terms of the sale are agreed by both parties. Follow the asterisk for a a suggested Form to use  

  

 

8.6  Sales Valuations 

8.6.1  For detailed requirements see NBHB 2.3.  
 
Additional Requirements for SHB are in the following paragraphs 

8.6.2  RSL’s cannot set Social HomeBuy prices above the valuation. 

8.6.3  The value of the property must be based on its open market value at the time of the application, based on the following assumptions:

• disregarding the tenant's improvements and failure of the tenant to keep the property in good repair;
• any service charges or improvement contributions payable will not be less than the estimates contained in the landlord's offer ;
• for freehold property, the landlord is selling  a freehold interest with vacant possession;
• for leasehold property, the landlord is selling with vacant possession for the appropriate term, i.e. not less than 125 years (where applicable) or a term expiring 5 days before the term of the landlord's lease is to expire.

 
8.6.4   The valuation on initial sale should be carried out by an independent valuer on behalf of the landlord . The landlord has discretion to re-value the property where the tenant has made written representations. Should the valuation be disputed tenants can apply to the district valuer whose decision will be final. The district valuer's costs will be met by the Communities and Local Government. These arrangements will only apply to the initial sales valuation - valuation arrangements in connection with the purchase of further shares should be contained within the shared owners' lease. 
 
8.7 Completing the Sale

8.7.1 It is advisable to send out an ‘Offer Confirmation’ letter once the applicant has returned the ‘Intention to Proceed’ form. This will ensure that the RSL and the tenant are proceeding on the same basis on the equity share % and other issues pertinent to the sale. It ensures that both parties have an understanding of the agreed position. 

8.7.2 Following confirmation of the tenants intention to proceed the RSL must provide them with the following:

• Formal valuation of the property to be sold, on a Market Value basis;
• The total rent payable on the property;
• An estimate of the annual service charges/sinking fund contributions;
• Details of any known structural defects;
• The provisions which, in the opinion of the landlord should be contained in the conveyance or lease;
• A suitable identification plan showing the boundaries of the property including the land to be sold;
• Details of any discounts received by the tenants in respect of a previous purchase.

8.7.3 The RSL may decide to undertake a survey to determine the future need for repairs and improvements.

8.7.4 On receipt of the tenant’s mortgage offer or other evidence of the means to purchase, the RSL will be in a position to instruct its solicitors and determine both the discount to be made available and total share the tenant is purchasing (if doing so on part buy/part rent terms), so that a formal offer can be made.

8.7.5  The RSL must carry out the following checks before it exchanges contracts:

• the tenant is not in rent arrears;
• a possession order has not been served during the period the tenant's application has been processed;
• the tenant is not the subject of an ASB suspension order/status, [link to section 4.4];
• the mortgage offer is from a Qualifying Lending Institution;
• where a mortgage is not required by the tenant, evidence of funds to finance the purchase;
• the RSL's private lender is prepared to release the property from its security.

8.7.6  The tenant has 3 months from the date of the formal valuation (or longer if the valuation is given for a longer period) to exchange contracts and a further month in which to complete the purchase. Where the tenant fails to exchange contracts on the property within the period the application may be deemed to be withdrawn (except in circumstances where the delay is as a result of the landlord’s inaction). 
 
8.7.7  The RSL must keep in regular contact with the purchasers to try to ensure that contracts are exchanged before the valuation expires.
 
8.7.8  In exceptional circumstances the RSL may use its discretion to extend the valuation period, for example where the delays have been wholly outside the control of the applicant or RSL.
  
8.7.9   The RSL's instructions to their solicitor must include the requirement to secure the repayment of discount if sold within 5 years (and repayment of any subsequent discount within 5 years) by way of a covenant in the conveyance/transfer. Subject to the RSL being satisfied with the details provided by the tenant and the solicitors, it will then be in a position to complete the sale.
 
8.7.10  Where SHB discount represents more than 50% of the value of the property (unlikely but theoretically possible)  the maximum amount of discount available shall be 50% of the value of the property. This will apply to situations where the purchaser is looking to purchase the property outright.

 
8.8  Qualifying Lending Institutions 

8.8.1  Under current arrangements a mortgage can only be secured as a first charge if it is provided by a “Qualifying Lending Institution”. Click the asterisk for list.  

 
8.8.2  RSLs must therefore ensure that any mortgage taken out by the tenant comes from a Qualifying Lending Institution. 

  
8.9  Submission Requirements 

8.9.1 The RSL must submit the following data following legal completion onto the Agency’s IMS system for a scheme to receive payment approval. (IMS guidance can be found at www.housingcorp-online.org):

• property details;
• Cost and Grant calculations including discount and percentage share to be purchased, if relevant;
• rent and HB eligible service charge data;
• date of legal completion of sale. 

8.9.2 The RSL will not be able to submit a claim  where the total Purchase Grants required (in money terms) exceed the amount approved as the programme allocation by the Agency; only the Agency can make the changes to the programme allocation in order for the RSL to Allocation Match and submit the scheme in IMS. The Agency may require a revised bid submission from the RSL.

8.9.3 RSLs must be able to confirm acceptance of the on screen certifications that appear at payment stage.

8.9.4 At the point of claiming PG RSLs must confirm that the application for Grant payment is correct and conforms with the Funding Conditions as  accepted by the RSL at the beginning of the financial year