4  Processing the Purchase

4.1 General

4.1.1 This section sets out the detailed procedural requirements which must be followed in order that it can qualify for SHG funding through the Homes and Communities Agency.

4.1.2 Equity Loan Providers will be responsible for producing any standard forms, letters, legal documents and guidance notes to support the programme.

4.2 Setting up the Programme

4.2.1 Once the Agency has approved the Equity Loan Provider's Contract, it can invite applications for the programme.

4.2.2 The Equity Loan Provider must have obtained a Consumer Credit Licence and a Direction from the Director General of Fair Trading under Section 60 (3) of the Consumer Credit Act 1974 (please see 4.3).

4.2.3 The Equity Loan Provider must prepare the following documents before marketing the programme:

• an explanation of how the programme works, including the need to obtain an equity loan from one of the  Equity Loan Providers, and the option for the purchaser to seek guidance from an Independent Financial Adviser.
• an explanation of how their product works, including the need to obtain a conventional mortgage from a qualifying lending institution or partnership funder
• an application form
• guidance notes for solicitors/licensed conveyancers

4.2.4  An explanatory booklet is available from the Agency’s website www.homesandcommunities.co.uk.
 
4.2.5  Equity Loan Providers are not authorised to deduct sums of money owed by an outgoing tenant from the SHG payment for the HomeBuy purchase.
 
Therefore, in cases where the purchaser is vacating a local authority or RSL property the landlord will need to consider what procedures they need to adopt to ensure:

1. that they achieve vacant possession of the tenanted property and
2. the most effective means of avoiding problems of rent arrears and damage to the property in the period between exchange of contract and the vacating of the property. 

4.3  Consumer Credit Licence 

4.3.1 The Equity Loan Provider will need a Consumer Credit Licence in order to be able to make OMHB loans and must not start implementing their OMHB programme before it has been granted a Licence.

4.3.2 To apply for a CCL, Equity Loan Providers should obtain the appropriate application form from the:

Office of Fair Trading
Consumer Credit Licensing Bureau
Craven House
40 Uxbridge Road
Ealing
London W5 2BS

Tel 020 7211 8608

 
and submit this application form (together with a cheque made payable to the Office of Fair Trading) to them.   How long before you have a response? Follow the asterisk

 

4.3.3 The Equity Loan Provider will also need to apply to the Director General of Fair Trading for a Direction under Section 60(3) of the Consumer Credit Act. This is because certain requirements of the Consumer Credit Act cannot be complied with due to the nature of the Open Market HomeBuy Programme. The Equity Loan Provider must complete and submit forms CCD 30/83 and CCD 31/83.and send them to:

The Office of Fair Trading
Consumer Affairs Division
Fleetbank House
2–6 Salisbury Square
 London EC4Y 8JX

The  Form of the Direction to be issued has been agreed with the Office of Fair Trading.

The Agency expects Equity Loan Providers to satisfy themselves that they meet all other obligations under the Consumer Credit Act plus any subsequent legislation.

4.3.4 By accepting the Agency's Funding Conditions at  the beginning of the financial year, the Equity Loan Provider is confirming that it has received its Consumer Credit Licence and the Direction under Section 60(3) and that it will comply with the requirements of its Consumer Credit License and Direction.  

 

4.3.5 The Licence will be valid for 5 years from the starting date shown on it, and the Equity Loan Provider should ensure procedures are in place to renew the licence as necessary.

4.3.6 If the Equity Loan Provider wishes to vary the Licence or any details on the Licence are no longer correct  (for example a change in trading name or address), the Office of Fair Trading must be notified in writing within 21 working days of the change taking place. Failure to do so may invalidate the Licence and lead to penalties.

Further information is available on the Office of Fair Trading’s website at www.oft.gov.uk.

4.3.7 Any promotional material produced by the Equity Loan Provider in relation to the OMHB product is subject to the Consumer Credit Act. Namely:

1. it must include its name and address
2. the information must be clear and easily legible and shown together in the same part of the promotional material (except for the name and address).

4.3.8 The Equity Loan Provider is advised to consult the local Trading Standards Department before issuing any advertising material.

4.4 The Application

4.4.1 On receipt of an application the Equity Loan Provider must: 

• check the application form has been completed and signed by the applicant(s) and that the relevant certifications have been made;
• check the applicant meets the eligibility criteria. See NBHB 1.4. Also, follow asterisk  for more information

 

4.4.2 The Equity Loan Provider must check it has sufficient allocation to allow the application to proceed as it must not exceed its agreed allocation with the Agency.  Additional funding needed to meet demand must be agreed with the Regional Investment Team.

4.4.3 The Equity Loan Provider must carry out a detailed financial assessment of every applicant and ensure they meet the qualifying criteria for the programme.  This financial assessment must be applied to anyone joining in the purchase. 

The Equity Loan Provider can exercise discretion in making assessments, but in deciding whether an applicant or joint applicant has sufficient funds to buy through Open Market HomeBuy, it must take account of:

• local circumstances, e.g. the affordability of homes in the area the applicant intends to buy in;
• the applicant’s household income (to consider the mortgage loan the applicant could support);
• savings and other capital assets of the applicant(s).; and
• debts and outgoings.

The Homes and Communities Agency requires  Equity Loan Providers to use the OMHB affordability best practice guide and affordability calculator, or a methodology of similar standard, to determine the applicant's ability to afford and sustain home ownership using the Open Market HomeBuy product.  This can be adapted to suit individual circumstances, whilst ensuring that long term sustainable home ownership  remains the primary objective. Follow asterisk for more information.  

 

Where the mortgage lender's assessment results in a lower borrowing figure this should be used.

4.4.4  The Equity Loan Provider must see evidence of income and outgoings when checking that the applicant meets the requirements of the programme. If such documentation has been shown to the HomeBuy Agent copies forwarded by the HomeBuy Agent will be acceptable.
 
4.4.5  An applicant meeting the eligibility criteria must be informed in writing and provided with information on how to proceed. The applicant will require the following information:

• confirmation of eligibility and approval to select a home in accordance with the Equity Loan Provider's instructions;
• the need to use a qualifying lending institution (please refer to www.fsa.org.uk (for more information) or Places for People's partnership funder for Places for People applicants, and to provide a copy of the mortgage offer to the Equity Loan Provider ;
• confirmation of the information that they will have to supply the Equity Loan Provider i.e.
  * details of the applicant’s legal representative who will be confirming
  - the purchase details (including confirmation of the agreed price) to the Equity Loan Provider of the home selected and
  - providing an undertaking to the Equity Loan Provider to secure the OMHB loan as a second charge on the property;
  *the need to provide an RICS Homebuyer’s Survey and Valuation Report or equivalent to the Equity Loan Provider (where a second-hand home is selected). A full structural report is not required by the Equity Loan Provider ;
  *the need to provide a valuation of the home to the Equity Loan Provider - this can either be the mortgage loan valuation or the valuation given in a Homebuyer’s Survey & Valuation Report -;
  *the need to provide the legal representative with guidance notes explaining how OMHB operates.

4.4.6  The Equity Loan Provider must send a standard response to the applicant to advise the applicant to proceed to select a property  together with Guidance Notes for lenders and legal representatives.
 
4.4.7  The applicant must obtain a mortgage from a qualifying lending institution, or if seeking an Ownhome equity loan from Places for People's partnership funder, where there is a difference between the amount that the lender will make available and the sum determined by the Equity Loan Provider's financial assessment of the applicant’s financial capacity, the lower figure will prevail for mortgage purposes.
 
4.4.8  Tenants of local authorities and RSLs must be told that on completion of their OMHB purchase they must surrender their tenancy and provide vacant possession.
 
4.4.9  All documents supporting the equity loan application must be retained on file by the Equity Loan Provider for external audit purposes.
 
4.4.10  The Equity Loan Provider must ensure applicants are actively progressing the selection and purchase of a property. A reasonable timetable for an applicant to reach exchange of contracts should be set for the applicant. The applicant must be told that their application will be treated as withdrawn if they do not reach exchange of contracts within the deadline set. How much time? Click on asterisk  
 

4.4.11  If having failed to meet the Equity Loan Provider's deadline  an application has been deemed to have been withdrawn, on being informed accordingly by the Equity Loan Provider  should the applicant wish to continue with the product, they must re-apply under the terms applying to the programme at that time.

4.5  The Purchase Process

4.5.1  Once the Equity Loan Provider has approved the property details and has checked that the applicant’s legal representative has certified they will secure the Equity Loan Provider's equity loan, it must check:

• the applicant intends to proceed with the purchase;
• the applicant has a valid mortgage from a  Qualifying Lending Institution, or Places for People's partnership funder,
• the valuation of the home provides adequate security for the Equity Loan Providers'  equity loan;
• that the survey report  indicates that the property is in a reasonable state of repair(for second-hand homes);
• the proposed timetable for exchange of contracts and completion
• applicants who are tenants of housing associations and local authorities have agreed to surrender their tenancies on completion of the sale.

4.5.2 Following the above checks the Equity Loan Provider  must:

• tell the applicant to proceed with the purchase;
• tell the applicant’s legal representative he/she may exchange contracts and provide the legal representative with instructions for securing the Equity Loan Provider's equity loan as a charge.

4.6 Purchase Price

4.6.1 Where fixtures are included as part of the purchase price, e.g. a fitted kitchen, the equity loan is based on the price paid for the home. Where the price includes moveable items, such as carpets and curtains, a separate agreement must be entered into by the applicant.

4.6.2 The equity loan will be based on the purchase price excluding the cost of such moveable items.

4.6.3 Where a vendor offers a discount or incentive as part of the sale e.g. the buyer is offered cash back or their legal fees paid, the Equity Loan Provider must establish the actual sale price of the home. For example if a home is advertised at £180,000 and the vendor offers to give £10,000 back to the buyer on completion, then the price for OMHB purposes is £170,000.

4.6.4 The Agency will allow the purchase of qualifying properties above the mortgage loan valuation, provided that:

• SHG is calculated on the lower of the actual price and the valuation of the property:  see below.
• the purchaser intends to meet the difference between value and price without resorting to further secured borrowing.

4.6.5 Where the purchase price is higher than the mortgage valuation, the Equity Loan Provider must claim SHG on the basis of the valuation. The application for SHG must be submitted to the Agency’s local Investment Officer with a covering letter setting out the circumstances and confirming the above conditions have been met.

4.6.6 The Equity Loan Provider must inform all applicants of the need to report the actual purchase price to be paid. The purchase price at exchange of contracts should be the same price at completion.  The Equity Loan Provider must investigate any purchase where this will not be the case.

4.7 Loan Documentation

4.7.1 The Equity Loan Provider must provide the applicant with a copy of the equity loan agreement within seven days of the equity loan being dated.

4.8 Grant Claim

4.8.1 Once exchange of contracts has been achieved the Equity Loan Provider must claim SHG as soon as possible (and not later than five working days) after the exchange of contracts has taken place. For details see Finance Section 3.