EOMHB - Overview

1 Overview

1.1 Purpose

1.1.1 This chapter sets out the main features of the Expanded Open Market HomeBuy programme, the procedures which must be followed, and the conditions under which HomeBuy Agents are required to administer the HomeBuy programme.

1.1.2 This is the basis upon which the Housing Corporation will assess applications for SHG.

1.2 Context

1.2.1 Expanded Open Market HomeBuy (EOMHB) is a Low Cost Home Ownership product that helps a purchaser to buy a property outright on the open market, with the assistance of equity loans in addition to their mortgage loan.

1.2.2 The aims of the programme are:

to assist tenants of housing associations, local authorities, and those nominated from waiting lists (who would otherwise have priority for social rented housing), to buy a home of their own;
to help meet the demand for social housing in areas of housing shortage by creating vacancies in social housing stock, reducing waiting lists and re-housing those in priority need in vacated units;
to help with recruitment and retention of key workers and ensure that good public services can be provided and maintained locally;
to help some other priority first time buyers/purchasers as defined by Regional Housing Boards.

1.2.3 The programme is not intended for those who would in any case be buying a home and wish to buy a higher quality home or one in a more expensive location. For Guidance on this follow the asterisk

1.2.4 There is no statutory right to Expanded Open Market HomeBuy and not everyone who is eligible can be accepted. Acceptance will depend on funds being available in a particular area and the suitability of any social rented home vacated for those in housing need, as identified by the participating HomeBuy Agents in consultation with local authorities.

1.2.5  It is a condition of Social Housing Grant (SHG) payment under s18 (3) of the Housing Act 1996 that the RSL operating EOMHB complies with these procedures. The Housing Corporation has no discretion to pay SHG in cases that do not comply with these procedures.

1.2.6  All HomeBuy Agent claims for payment of SHG must be submitted via the internet using the Corporation’s Programme Investment Management System (IMS / PiMS).

1.2.7  The scheme submission must comply with the Funding Conditions as accepted by the HomeBuy Agent’s Committee and confirmed on line by the HomeBuy Agent’s Security Administrator, plus any further conditions issued by the Housing Corporation in year. The HomeBuy Agent will not be able to make a submission of any kind into IMS / PiMS until this confirmation has been made. The HomeBuy Agent must retain a minute of the Committee decision on file for Compliance Audit purposes.

1.2.8 HomeBuy Agents’ permissible purposes, specified in section 2(4) of the Housing Act 1996, have been expanded to enable them to provide loans through the HomeBuy product. The Social Landlords (Additional Purposes or Objects) Order (S.I. no. 985) 1999 refers.

1.2.9 The HomeBuy Agent must obtain a Consumer Credit Licence and a Direction from the Director General of Fair Trading under s60(3) of the Consumer Credit Act 1974 in order to be able to provide the product.

Detailed guidance on obtaining a licence is set out in EOMHB-8. See paragraph 4.1 below regarding publicity material requirements.

1.3 Main Features of the Programme

1.3.1 Expanded Open Market HomeBuy is a means of helping a qualifying person to buy a home outright on the open market anywhere in England. The purchaser buys the property outright with funds from the following sources:

savings (if any)
conventional mortgage from a Participating Lender

which together must add up to at least 75% of the cost of the property, plus:

equity loans from the RSL & that Participating Lender.

The Participating Lender provides an equity loan for approximately 12.5% of the price of the property. The same lender provides the applicant with the conventional loan and that equity loan.

The RSL provides an equity loan for the remainder of the price of the property i.e. up to 12.5% of the property price.

1.3.2 Expanded Open Market HomeBuy schemes are undertaken by RSLs who are HomeBuy Agents. Other RSLs do not participate in the programme..

1.3.3 The applicant is responsible for their own costs associated with the purchase, for example legal fees, removal costs.

1.3.4 The equity loan will be based on the full market valuation of the property. When the applicant wishes to redeem the loan or sell the property the equity loan repayment sums will be for the appropriate % of the market value of the home at the date of repayment or sale

1.3.5 Interest on Participating Lenders equity loan: No interest is charged for the first five years. After five years the interest is capped at 3% rising up to - but not exceeding- the lender’s standard variable rate after 10 years from the time the equity loan was taken out.

1.3.6 Interest on HomeBuy Agent equity loan: no interest is charged for the duration of the loan.

1.3.7 Repayment of equity loans: When an equity loan is repaid, the home owner will have to share any increase in the property’s value with the lender (the Participating Lender and / or the HomeBuy Agent).

Where equity loans were previously provided by RSLs prior to the introduction of HBAs that repayment should be to the RSL.

1.3.8 The buyer can either repay the loan during occupation or on the sale of the property. The amount to be paid is calculated as a share in the property value at the time of sale or repayment. The share to the paid is the same share that the equity loan represented at the time of the original purchase by the applicant.

For simple worked examples click on the asterisk

1.3.9 The buyer must repay the HomeBuy Agent’s loan:

on selling the home, or
if they leave {qualifying employment, in the case of a key worker.

1.3.10 The HomeBuy Agent’s equity loan does NOT have to be repaid where the purchasers have paid off their conventional mortgage but continue to live in the property, although the Participating Lender’s equity loan does have to be paid off if the conventional mortgage is paid off .

1.3.11 The Participating Lender’s conventional mortgage loan and equity loan are secured as a joint first charge on the property.

1.3.12 The HomeBuy agent’s equity loan is secured as a second charge on the property.

1.3.13 Both equity loans must be repaid when the property is sold.

1.3.14 If the purchaser sells the property, or repays the HomeBuy Agent’s equity loan, the Grant is Recovered. Click here for details of Grant Recovery 1.4 Targeting and Publicity

1.4.1 The HomeBuy Agents, in consultation with local authorities, are responsible for targeting and publicising the programme to eligible client groups.

1.4.2 The Financial Services Authority has also produced a fact sheet about Open Market HomeBuy that must be issued to participants. The FSA leaflet is only available in hard copy and can be ordered from their publications dept. at www.fsa.gov.uk

For more on this topic follow the asterisk

1.4.3 The HomeBuy Agent may produce its own publicity material for the programme but it must contain the information required by the Consumer Credit Act 1974. For sample publicity material follow asterisk

1.5 Participating Lenders

1.5.1 Under current arrangements a mortgage loan can only be secured as a first charge if it is provided by a “qualifying lending institution”. Four of the Qualifying Lending Institutions are currently offering mortgages for this programme. These Participating Lenders are:

Advantage Home Loans;
Halifax;
Nationwide BS;
Yorkshire BS.

Other lenders may join the programme later.

1.6 Role of the HomeBuy Agent

1.6.1 The role of the HomeBuy Agent is to ensure applicants meet the eligibility criteria for the programme and are buying a property within the rules for the programme published by the Housing Corporation. For more details on these rules click on the asterisk

1.6.2 Since an equity loan is being provided the HomeBuy Agent will be responsible for checking whether the property qualifies for the programme and instructing the purchaser to proceed to exchange contracts.

1.6.3 The HomeBuy Agent will provide the applicant’s legal representative with a sum not exceeding 12.5% of the purchase price on the date agreed for the purchase completion. Depending on the Participating Lender selected, a buyer’s deposit could be used to either reduce their equity loan from the HomeBuy Agent, or to reduce their conventional mortgage loan.

1.6.4 The loan provided by the HomeBuy Agent has to be secured on the property and will rank immediately behind the private sector loan from the Participating Lender. Further advances provided by the lender will need to be approved by the HomeBuy Agent and provided the loan is for improvements to the property, such a further advance would rank ahead of the loan by the HomeBuy Agent.

1.7 Transitional Arrangements from January to March 2008

1.7.1 The existing Open Market HomeBuy products will change from 1st April 2008 when new funding arrangements will be introduced. Full details will be available in a revised OMHB chapter due to be published in April 2008. Headline details of the new funding regime will be available on the Corporation's main website as soon as they are finalised.

1.7.2 Current arrangements require OMHB applications to achieve exchange of contacts within six months. Applications for assistance under the current products received up to 31st March 2008 will still be subject to the six month time limit, that is exchange of contracts and grant claim should be achieved before or on 30th September 2008, subject to the following criteria.

1.7.3  Applicants assessed as eligible and have found a property before 31st March 2008

Applicants who are assessed as eligible and have found a property before 31st March may apply for assistance under the existing products, or apply for assistance under the new products when they become available from April 1st 2008. As above headline details of the new products will be made available prior to their introduction when HomeBuy Agents will be required to explain all available options to applicants

1.7.4 Halifax Bank of Scotland and Nationwide will continue to accept requests for expanded Open Market HomeBuy equity loan assistance until February 29th.

1.7.5 Yorkshire BS will continue to accept requests for equity loan assistance in conjunction with the Government Loan Only product until March 31st.

1.7.6 Government only loans provided by HomeBuy Agents will continue to be available for applications received by March 31st.

1.7.7 Applications received and assessed as eligible before 31st March, but property not found until after 1 April 2008

Applicants who are assessed as eligible before 31st March 2008 but who do not find a property until after 1st April 2008 may opt to apply for assistance under the existing government loan only product or to apply for assistance under the new products. As above headline details of the new products will be made available prior to their introduction when HomeBuy Agents will be required to explain all available options to applicants.

1.7.8 Applications received before 31st March, but eligibility not confirmed before 1 April 2008

Applications received by HomeBuy Agents before March 31st, but where eligibility has not been confirmed before 1st April 2008, should be assessed as soon as possible after April 1st by HomeBuy Agents and applicants offered the option of the government loan only or the new product.

1.7.9 Where HomeBuy Agents continue to process applications there will be no discretion to extend the deadline of claiming grant by 30th September 2008, and all applications should be closely monitored to ensure all deadlines are met. If exchange of contracts and grant claim cannot be achieved before 30th September 2008 applications should be treated as withdrawn and applicants advised to reapply under the new procedures