The Scottish Government is committed to helping people meet their aspirations to become home owners and has recently announced an expansion of its scheme to help first-time buyers, The Open Market Shared Equity Pilot (OMSEP). The scheme is being rolled out across Scotland with an increased budget of £60 million for 2009-2010. It is expected to help around 1,500 households this year.
The scheme is part of the Scottish Government's Low-cost Initiative for First Time Buyers (LIFT), to help people on low to moderate incomes buy an affordable home.
Through OMSEP, buyers can own a home, but only pay for a proportion of it - usually between 60 and 80 per cent of its value - with the Government funding the remainder through taking an interest-free equity stake. The buyer does not pay any charges on the equity stake, but pays the Scottish Government a proportion of the sale price when they decide to sell further down the line, or earlier if they wish.
What is shared equity?
Shared equity means that the Scottish Government will keep a financial stake in the property so you do not have to fund all of it. You will pay for the majority share in the property – normally between 60 and 80 per cent of the price – and the Scottish Government will hold the remaining share under a shared equity agreement which they will enter into with you. You will own the property outright but the interests of the Scottish Government will be secured by a mortgage (or a ‘standard security’ as it is known in Scotland) on that property.
Who is it for?
OMSEP mainly aims to help first-time buyers. But it can help others too. For example, it may be able to help you if you are looking for a new home after a significant change in your household circumstances or if you have a disability and own a house which doesn’t suit your needs. If you currently own your home or part-own a property, you will need to sell your interest in that property at the same time that you buy a home through the OMSEP.
Am I eligible?
You will be assessed by the registered social landlord operating the scheme (for Dundee this is Link Homes who can be contacted on 08451 550019) to see whether or not you qualify. To allow this to happen, a form of ‘means testing’ will be carried out. You will need to show that you cannot buy a house suitable for your needs without help from the OMSEP.
The amount that you contribute must be the maximum mortgage you can reasonably obtain and afford plus any personal contribution that you are able to make. However, the registered social landlord will be able to give you information on the income multipliers it uses when considering the level of mortgage finance you can raise. You should not exceed these unless you have received independent financial advice as you need to be confident that you can pay your mortgage over the long term, even if mortgage interest rates or other living costs increase. The overall amount must be enough to pay for your stake and cover all the costs of buying a home, such as legal costs.
What happens when I want to sell my shared equity property?
If, for example, you purchase an 80 per cent stake in your property when you want to move, then you will get 80 per cent of the selling price when it is sold. The Scottish Government will receive the remaining 20 per cent. The percentage you get is not affected by changes in the value of your property over time.