The Customer Service Team Estates & Housing Directorate
House Purchase Assistance Scheme 2007 and Register of First Time Buyers Explanatory Leaflet
1. Introduction The purchase of a home is a major decision and is likely to require your largest ever financial commitment. Buying a property involves not just monthly mortgage repayments, but also rates, insurance and repairs and maintenance. If you are applying for a Top Up Loan for an “approved” property under the Scheme then after a five year payment holiday you must also commence repayment of interest in respect of this loan in addition to your mortgage repayments. Before considering home ownership you should seek advice from a professional mortgage/ financial adviser. In addition please read carefully the following sections which should provide an explanation of what kind of assistance may be available to you, the type of property that is eligible for assistance, and how you can make an application or get some further advice. 2. What is the Register of First Time Buyers? The Department of Local Government and the Environment maintains a Register of First Time Buyers (the Register) for those interested in purchasing a home for the first time. To qualify for inclusion on the Register you must satisfy the criteria of the House Purchase Assistance Scheme. The purpose of the Register is to determine the demand for first time buyer housing and the preferred locations for new dwellings. You do not have to be on the Register to be eligible for financial assistance. The Scheme also provides financial assistance by way of a grant for the purchase of existing properties on the open market.
However only those who are on the First Time Buyer Register will be considered for new “approved” first time buyer dwellings on approved developments undertaken by the Department or private developers. If you wish to apply to go on the Register you will find the address at the back of this leaflet.
3. What is the House Purchase Assistance Scheme? The House Purchase Assistance Scheme 2007 provides financial assistance in two separate ways: (1) By providing a grant to add to a mortgage and your own savings etc. to purchase an existing or new open market dwelling up to £150,000 (2) By providing a Top Up loan in addition to your mortgage, any grant and your own savings etc. to purchase a new “approved” dwelling up to £150,000. “Approved” dwellings are only allocated to people on the First Time Buyer Register.
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4. Who is eligible for assistance under the Scheme? • You and your spouse/partner (if the application is joint) must have lived on the Island continuously for five years up to the date of your application, or for periods totalling at least fifteen years up to that date (but you must have been permanently resident on the Island for a period of at least six months prior to your application to the Scheme). Single applicants or joint applicants with a maximum approved income of £35,000 per annum for an “approved” dwelling or £25,000 per annum for an open market dwelling.
•
You must be a first time buyer and not have owned a property before, unless there are exceptional circumstances which you may ask the Department to consider. 5. Which properties are eligible?
The Scheme refers to dwellings and to “approved” dwellings. The definition of each is as follows:
• A dwelling is an existing or new property (including apartments) that is not defined as “approved”. The maximum purchase price allowed under the Scheme for such a dwelling is £150,000 and only grant assistance is available. Dwellings must comply with minimum spatial standards and should not be less than 55 square metres in total floor area. They must have at least one bedroom and a separate bathroom. Some discretion can be applied to dwellings which have floor areas very close to the 55m² requirement. An “approved” dwelling is a new property on an “approved” development undertaken by the Department or private developer built to a size and technical standards approved by the Department. Only “approved” dwellings are eligible for a Top-Up loan. The maximum Top-Up loan that can be advanced by the Department is 30% of the purchase price of the property. The 70% balance must be made up by way of a mortgage and grant if applicable, plus your own savings. The maximum purchase price of an “approved” dwelling is £150,000. The minimum spatial standards for “approved” dwellings are not less than 63 square metres. The Department may refuse an open market application where the dwelling comprises more than four bedrooms.
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6. What is approved Income? Approved income is calculated as follows: • for a single employed applicant, the gross basic income, plus regular overtime (up to 1/6th of basic income). Gross income includes income from all sources such as regular bonuses and savings interest. for a single self employed applicant, the average of the last three years gross income as shown by audited accounts.
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•
for joint applicants the whole of the higher income plus 1/3rd of the lower income, including regular overtime (up to 1/6th of basic income). Gross income includes income from all sources such as regular bonuses and savings interest. Income will need to be verified by the employer or by production of audited accounts were applicable. Where an application to purchase a property is made by a single applicant, any assistance provided under the Scheme shall take account of the income of your spouse or partner.
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The Scheme is intended to help bridge any shortfall between the funds you have or could reasonably expect to obtain from your mortgage lender and the purchase price. You will be expected to have obtained a mortgage in the region of three and a half times your approved income. The Department may refuse an application: • • • If you intend to live alone if it is for a property with more than two bedrooms, or If you are not in full time permanent employment or in full-time self-employment on the Island, or: If, in the opinion of the Department, you have, or will shortly have, sufficient means to buy a dwelling without assistance under this Scheme.
7. What kind of financial assistance is available under the Scheme? The Scheme provides a maximum level of grant assistance calculated on a sliding scale against your approved income. Approved incomes of £19,000 or less will attract the maximum grant of £25,000. No grant assistance is available to applicants with an approved income in excess of £25,000. Your grant entitlement will be calculated on an individual basis according to your calculated approved income but some examples of the sliding scale entitlement are shown in the table below:
Approved Income
Over £25,000 £25,000 £24,500 £24,000 £23,500 £23,000 £22,500 £22,000 £21,500 £21,000 £20,500 £20,000 £19,500 19,000 or less
Grant
Nil £ 3,000 £ 3,000 £ 4,167 £ 6,250 £ 8,333 £10,417 £12,500 £14,583 £16,667 £18,750 £20,833 £22,917 £25,000
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If you wish to purchase an existing or new open market dwelling not designated as “approved” by the Department, up to a maximum purchase price of £150,000 you are not eligible for a Top Up loan but you can apply for a grant. Grants normally reduce by 20% each fifth year and therefore after twenty five years will eventually be written off. If the property is sold within this twenty five year period any grant outstanding at the time is repayable. For those on the First Time Buyer Register who have been allocated an “approved” dwelling, further assistance may be available by the way of a Top-Up-loan. 8. • • • How does a Top-Up loan work? A Top-Up loan is only available on an “approved” dwelling, which has been allocated by the Department to an applicant on the First Time Buyer Register. The maximum amount of Top-Up loan is 30% of the purchase price. The Department will consider your particular circumstances and, if the application is approved, will make an offer of assistance which may combine grant and loan, depending on your income. Top-Up loans will be subject to a discounted interest rate at 1% below Bank of England base rate. Interest is compounded every six months. Where a Top-Up loan has been approved the applicant will receive six monthly statements showing the amount of the loan outstanding, the amount of grant (if applicable), and interest accrued on the loan over the previous six months. In the first five years of your loan you will have the option to pay the interest only, or pay the interest and any portion of the original Top-Up loan (capital sum). Alternatively you can take a payment holiday for up to five years, i.e. do nothing, and allow the interest to accrue. However, you must be aware that if you choose this option, the interest for this five year period will continue to accrue on a half yearly basis. The total amount, capital sum plus accrued interest, will become payable at the end of the 25 year loan term – please see example, which shows a top up loan of £30,000, accruing interest for the five year payment holiday period which would result in a total amount repayable of £37,201.61. The Bank of England Base Rate will vary over the term of the loan so this figure is for illustration purposes only and the actual figure outstanding after twenty five years may be higher or lower than this. If you decide to pay the interest you will receive an interest statement to enable you to claim tax relief. If the property is sold or otherwise disposed of at any time within the full twenty five year term of the loan all outstanding grant and loan (plus accrued interest) must be repaid. After five years you will be required to pay the interest accrued on the Top Up loan on a minimum of a six monthly basis. At the end of your fifth year your statement will advise you of your requirement under the Scheme to repay interest accrued on
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the Top-Up loan from this date and to assist you with budgeting you will be given an option to make regular monthly payments to the Department to cover your interest liabilities. Your interest repayments are eligible for tax relief and copies of your interest statements should be submitted to the Tax Office with your annual Income Tax return. • • Grants normally reduce by 20% each fifth year as stated in 7 above. Assistance provided by the Department by way of grant and/or loan will be secured on the dwelling by a second charge after any first charge granted to an approved mortgage provider. Any outstanding grant or loan plus accrued interest is repayable to the Department on the sale or disposal of the property.
9. (1) (2) (3)
Are there any other conditions of assistance? You will be responsible for paying all fees such as professional (i.e. advocates), mortgage and charges incurred in connection with the application. There is no fee for First Time Buyer registration but an application for assistance under the Scheme is subject to an administration fee of £20. The dwelling must be used for your own full-time occupation, and must not be used for any trade or business, or let or sub-let, without the prior consent in writing of the Department. Whilst there remains a charge upon the property in favour of the Department you must: (a) keep the dwelling in good repair at all times; (b) pay all outgoings in respect of the dwelling; (c) comply with all legal requirements relating to planning and building control; (d) insure the dwelling against fire and all other risks required by the Department in the joint names of yourself and the Department; (e) allow the Department to inspect the dwelling at any reasonable time
(4)
10. What happens if I wish to sell, move to a larger dwelling or repay the loan or grant? (1) Unless the Department chooses otherwise you will be required, under the original purchase agreement, to sell to a new purchaser selected by the Department from the First Time Buyer Register, within the range of dwelling prices determined by the Department under the Scheme at the time of sale. Any outstanding grant and/or Top Up loan will become repayable. All sale agreements for “approved” properties require that for the first ten years after purchase if you wish to dispose of the property you must offer it back to the
(2)
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Department, or to a First Time Buyer nominated by the Department. This is called a pre-emption right and allows another First Time Buyer to benefit from the Scheme. The value of the property during this ten year period will be significantly less than market value as it is determined by the provisions of the prevailing House Purchase Assistance Scheme. You will not be able to sell an “approved” property on the open market, at the open market value until the expiry of 10 years from the date of purchase. (3) If you wish to sell the property because you need a larger dwelling due to changes in your family circumstances the Department may permit any outstanding grant charge to be transferred to a second property on the open market not exceeding £200,000 providing that you sell to a purchaser from the First Time Buyer Register selected by the Department under the provisions of the Scheme at the time. If you have purchased an “approved” dwelling from the Department and your family circumstances change you also have an option to transfer to a larger “approved” dwelling (subject to availability). In these circumstances you may also be allowed to transfer your Top Up Loan plus any accrued interest as well as any outstanding grant. You must register with the Department as a Second Time Buyer to be considered for this option. As shown in section 8, you will have several options to repay your grant, top up loan or interest. If you decide to pay no interest for the five year payment holiday period, the original amount of your top-up loan and the accrued interest will become payable in full after twenty five years or at time of sale or other disposal of the property if earlier. If you accept the offer of Top Up loan assistance you have entered into a formal loan agreement with the Department. Repayment of Top Up loan interest becomes mandatory after five years. Failure to make repayments as required under the terms of the Scheme will result in the Department taking default action against you and you will be at risk of losing your home.
(4)
(5)
(6)
11. Need help? If you have any queries or need further advice about the Register or the Scheme, please contact; Customer Services, Estates and Housing Directorate Department of Local Government and the Environment
3rd Floor, Murray House,
Mount Havelock, Douglas IM1 2SF Telephone: (01624) 685955 Fax: (01624) 685943 E-mail: estatesandhousing@dlge.gov.im
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These notes and the examples therein are offered for guidance purposes only and are not intended to be a definitive interpretation of the House Purchase Assistance Scheme. Before considering home ownership you should seek advice from a professional mortgage/financial advisor.
The Department of Local Government and the Environment will use the information it obtains from customers for administration in connection with its statutory functions and the provision of any other services to its customers, including marketing, auditing, risk assessment fraud and crime prevention. In administering the department or any services provided to the customer, DOLGE may share the information concerning the customer with government departments only where there is a statutory requirement to do so, and with agents operating under confidentiality agreements. In addition, DOLGE may have to disclose information about the customer to auditors, legal advisers and regulatory bodies and Tynwald Members. Subject to the above and unless it has the right or duty to disclose or is permitted or compelled to do so by law, DOLGE shall not disclose any information about the customer or the company without prior consent of the client or an authorised person. Unless notified by the customer that such information is not required, DOLGE may from time to time advise the client of products and services offered by DOLGE that it believes would be of interest. The client has a right to see a copy of the records relating to them that DOLGE controls and to have any errors corrected. To see a copy of their records the client should apply in writing to the Data Protection Officer. DOLGE may charge a fee of up to £10 for such access.
House Purchase Assistance Scheme JULY 2007
These notes summarise the updated provisions of the House Purchase Assistance Scheme 2007 compared to the previous HPAS 2002 as amended HPAS (Amendment) 2004, and illustrates how grant and Top Up Loan assistance works for a range of selling prices and incomes. 1. Effects of the House Purchase Assistance Scheme 2007 The House Purchase Assistance Scheme 2007:a) Increases the maximum purchase price of a dwelling from:• £145,000 to £150,000 • £190,000 to £200,000 for second time buyers purchasing open market dwellings b) c) Increases the maximum approved income of a purchaser from £32,000 to £35,000. Provides for the allocation of grant on a sliding scale for each £ of approved income.
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d)
Provides that the repayment of accrued Top-Up loan interest becomes mandatory from five years from the date of purchase.
2.
Examples of how Grants and Top up Loans might apply for the purchase of an approved dwelling. Purchase Price Approved Income Mortgage Obtained Approved Grant Top-up Loan Savings Required Total £115,000 (£17,000) £ 60,000 £ 25,000 £ 30,000 £ nil £115,000 £115,000 (£27,000) £ 95,000 £ nil £ 17,250 £ 2,750 £115,000 £125,000 (£18,000) £ 63,000 £ 25,000 £ 37,000 £ nil £125,000 £125,000 (£29,000) £ 102,000 £ nil £ 23,000 £ nil £125,000
Purchase Price Approved Income Mortgage Obtained Approved Grant Top-up Loan Savings Required Total
£135,000 (£19,000) £ 67,000 £ 25,000 £ 40,500 £ 2,500 £135,000
£135,000 (£24,000) £ 84,000 £ 7,000 £ 40,500 £ 3,500 £135,000
£135,000 (£32,000) £112,000 £ nil £ 20,250 £ 2,750 £135,000
£140,000 (£25,000) £ 88,000 £ 3,000 £ 42,000 £ 7,000 £140,000
Purchase Price Approved Income Mortgage Obtained Approved Grant Top-up Loan Savings Required Total
£140,000 (£30,000) £105,000 £ nil £ 35,000 £140,000
£145,000 (£20,000) £ 70,000 £ 21,000 £ 43,500 £ 10,500 £145,000
£145,000 (£32,000) £112,000 £ nil £ 33,000 £ nil £145,000
£150,000 (£32,000) £112,000 £ nil £ 38,000 £ nil £150,000
Note: Mortgage based on 3.5 times approved income
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The example below shows how interest will accrue on a Top Up Loan over a 25 year repayment period if no payments are made in the ‘payment holiday’ period of the first five years. This is for illustration purposes only as the interest rate charged (which is set at 1% below base rate) will fluctuate in accordance with the actual Bank of England base rate. Therefore the actual total amount payable could be lesser or greater than shown in the example below.
Interest is accrued on the first half-year capital sum, then 2nd half-year on capital sum plus accrued interest.
Top up Loan £30,000
yea r capital sum (original loan) Applied rate % Total accrued interest this year Total Interest paid Balance carried forward Bank of England rate (exampl e)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19
£30,000.00 £31,365.19 £32,552.41 £33,950.59 £35,495.55 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61
4.5 3.75 4.25 4.5 4.75 5.0 4.75 4.5 4.5 4.5 3.75 4.5 3.75 4.25 4.5 4.75 5.0 4.75 4.5
£1,365.19 £1,187.22 £1,398.18 £1,544.96 £1,706.06 £1,860.08 £1,767.08 £1,674.07 £1,674.07 £1,674.07 £1,395.06 £1,674.07 £1,395.06 £1,581.07 £1,674.07 £1,767.08 £1,860.08 £1,767.08 £1,674.07
0 0 0 0 0 £1,860.0 8 £1,767.0 8 £1,674.0 7 £1,674.0 7 £1,674.0 7 £1,395.0 6 £1,674.0 7 £1,395.0 6 £1,581.0 7 £1,674.0 7 £1,767.0 8 £1,860.0 8 £1,767.0 8 £1,674.0 7
£31,365.19 £32,552.41 £33,950.59 £35,495.55 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61
5.5 4.75 5.25 5.5 5.75 6.0 5.75 5.5 5.5 5.5 4.75 5.5 4.75 5.25 5.5 5.75 6.0 5.75 5.5
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20 21 22 23 24 25
£37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61
4.5 4.5 3.75 4.5 4.5 4.5
£1,674.07 £1,674.07 £1,395.06 £1,674.07 £1,674.07 £1,674.07
£1,674.0 7 £1,674.0 7 £1,395.0 6 £1,674.0 7 £1,674.0 7 £1,674.0 7
£37,201.61 £37,201.61 £37,201.61 £37,201.61 £37,201.61
5.5 5.5 4.75 5.5 5.5
£37,201.61 5.5 Total Repayable
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