LIFT (formerly HomeStake) - a shared equity scheme operating in Scotland

Introduction

LIFT is a shared equity scheme introduced in Scotland in September 2005 aimed at helping people on low incomes who wish to become homeowners but cannot afford to pay the full price for a house. The scheme which is similar to the HomeBuy scheme which has operated in England and Wales for a number of years will be run by the Scottish Government housing and investment division, with the exception of Edinburgh and Glasgow where it will be run by the respective City Councils. It is envisaged that a registered social landlord (RSL) will fund part of the purchase price of the house using a LIFT grant.

Who will it assist?

LIFT is aimed at households on low incomes. Their income will be assessed to ascertain if they qualify. No national criteria are being set for the income test due to the fact that housing costs vary from area to area. However, part of the assessment criteria will involve applicants obtaining quotations from three different mortgage lenders on the maximum amount which they can borrow

LIFT will mainly aim to assist first-time buyers into home ownership, but it can be used to help others too. For example, a disabled person who owns a house which is not suitable for their needs could be helped to move to a more suitable house. In addition, it is envisaged that in selected locations where owner-occupiers are affected by demolition plans, LIFT would be available to help them buy a replacement house in the same area.

Where will LIFT be available?

LIFT will be available mainly in new housing developments as it is intended to encourage the building of more new houses to meet shortages in supply. It will be targeted at three types of projects:

• Projects which grant fund RSLs to build new properties for sale on a shared equity basis;
• Projects which grant fund RSLs to purchase properties at an appropriate discount from private developers for onward sale to shared equity purchasers; and
• Projects which grant fund RSLs to develop new properties for sale on a shared equity basis to existing owner occupiers whose homes are scheduled for demolition and who wish to participate in an agreed redevelopment plan.

What level of equity stake requires to be purchased using LIFT?

Individuals purchasing a property from an RSL will generally require to take an equity stake of between 60% and 80% of the market value of the property as set by the district valuer. With the agreement of the grant provider, however, the maximum equity stake can be reduced to as low as 51%. This is likely to apply where a housing market is particularly pressurised, or where people with particular housing needs have identified additional housing costs. In all cases, the maximum initial equity stake which a homeowner can take will be 80% of the market value of a property. Applicants will be expected to purchase the maximum amount of equity which they can reasonably afford, taking account of other financial commitments and the associated costs of home-ownership.

Responsibilities of owner under LIFT

In contrast to the types of shared ownership scheme which operate in Scotland, the owner will have full legal title to the property and will not make an occupancy payment to the RSL. The owner will:

• be responsible for the valuation and legal costs on purchase;
• be responsible for the insurance of the property;
• be expected to occupy the property as their only residence; and
• be responsible for all maintenance, repair and insurance costs and not just a percentage based on their equity interest.not be allowed to let or sub-let the property without the consent of the RSL.

Increasing amount of equity share

An owner will have the option of increasing their equity stake, after the initial purchase, to up to 100%. In certain circumstances where there is a constrained supply of affordable housing and limited scope for the supply to be increased, the RSL may be allowed to retain a 20% equity stake in the property, known as a golden share.  An owner must wait a minimum period of two years after initial purchase before they can increase their equity stake in a property to 80% (or beyond and up to 100% if there is no golden share). 

What happens on sale?

When an owner wishes to sell the property it can be sold on the open market with the owner receiving a proportion of the sale proceeds based on the level of their equity stake. If, for example, the owner had an 80% stake in the property, then they would receive 80% of the selling price with the remaining 20% going to the RSL who would either repay the LIFT grant or use the money to provide more houses. Where the RSL held a golden share in the property, the owner would require to notify the RSL of the proposed sale and the RSL would have the option to purchase at a price failing agreement to be fixed by the district valuer.

Financing the purchase of the equity share

A prospective owner can approach a mortgage lender for a loan to purchase the equity stake. Mortgage lenders will apply their normal affordability criteria. Where a mortgage lender advances money to an individual to buy an equity stake in the property, they will be entitled to obtain a standard security from the individual over the property. The RSL would also obtain a standard security from the individual over the property to protect their equity interest in the property. A ranking agreement would be entered into between the lender, RSL and the owner which would allow the lender's standard security to rank before that of the RSL in respect of the amount of their loan and one year's interest and charges.

Open market purchase scheme

A pilot scheme for open market purchase will operate in Edinburgh and the Lothians for a period of 12 months commencing in September 2005. The basis of the scheme will be similar to the above and it is envisaged that it will involve the purchase of 100 properties. The pilot will however only be administered by 3 RSLs, namely the link group, Castle Rock and Dunedin Canmore. A one stop approach will be adopted for assessment of individuals for eligibility to the scheme and this will be administered by the link group. Each of the RSLs will then operate in defined geographic areas to administer the process of property purchase and for the acquisition of equity stakes. Castle Rock will operate in the scheme in East and West Lothian, Dunedin Canmore in south Edinburgh and Link in north Edinburgh.

On 21 January 2008, the Scottish Government announced that following the success of the pilot in Edinburgh and the Lothians it would be tested later in 2007 in six other areas of high property demand. These are Aberdeen, Aberdeenshire, Moray, Perth and Kinross, Stirling and Highland local authority areas.

An evaluation of the pilot in Edinburgh and the Lothians has now been conducted by Heriot Watt University, and this has been published on the Communities Scotland website.

On 19 October 2008, in response to the worsening economic conditions, the Scottish Government announced that it would extend the open market scheme throughout Scotland from January 2009. This extension will be for a period of 12 months and, thereafter, the geographic coverage of the scheme will be reviewed.

On 31 March 2009 the Scottish Government confirmed that the open market scheme had been extended throughout Scotland from that date.

Details of the Scheme

Details of the new-build LIFT scheme and the administrative arrangements are now available on the Communities Scotland website.

The literature in respect of the open market scheme is in course of being updated by the Scottish Government.