Annexe K: Template Letter to be issued to prospective NSSE Purchasers
Dear [ ]
Scottish Government New Supply Shared Equity Scheme
Property at [Insert address]
With reference to your proposed purchase of the property at [ Insert address ] from [the Association/Council [ Amend/complete as appropriate ] with financial support from Scottish Government through the New Supply Shared Equity Scheme, the purpose of this letter is to explain to you the nature and main features of the equity loan from Scottish Government.
The basis of the NSSE scheme is that the price for the purchase of the house is partly funded by the purchaser from their savings and from a commercial mortgage, with the balance being funded by way of an "equity loan" from the Scottish Government.
The main features of this equity loan are:
- there is no set date by which you must repay the equity loan. The loan does, however, become repayable if certain events or circumstances occur, such as when you decide to sell the property;
- no interest is charged by Scottish Government on the equity loan while it is outstanding and provided you are not in breach of its terms;
- the equity loan is expressed as a fixed percentage of the value of the property, based upon the initial purchase price which you pay. So if you pay £100,000 to buy your property and receive a Scottish Government equity loan of £20,000, this equity loan will represent a 20% equity stake in the property. When the equity loan becomes repayable to Scottish Government - for example, when the property is sold - the amount to be repaid to Scottish Government is 20% of the sale price. This may be more or less than the amount of the equity loan. For example, if the sale price was £150,000 then the amount to be repaid to Scottish Government will be 20% of £150,000 - £30,000.
The main risk associated with the equity loan is that you must comply with the applicable conditions while the loan is outstanding. These conditions are set out in the shared equity loan agreement which you must enter into with Scottish Government. Among these conditions are a requirement that you must occupy your home as your only place of residence, and a prohibition on letting your home out to a third party unless Scottish Government has given its prior consent. If you do breach any of the applicable equity loan conditions and do not remedy the breach, you run the risk of Scottish Government taking action to enforce the terms of the shared equity loan agreement and of requiring repayment of the equity loan.
You will require to grant a standard security over title to your home in favour of Scottish Government to secure compliance with the equity loan terms, which means that Scottish Government could take steps to enforce its security in the event of a breach of the equity loan conditions, which could result in you losing your home.
There are no charges levied by Scottish Government as a condition of making an equity loan available to an eligible applicant, nor are any costs or charges levied during the period of the equity loan. There are, however, administrative charges which you need to pay to the administrative agent who administers equity loans on behalf of Scottish Government if you wish to amend certain aspects of your equity loan arrangements - for example, if you wish to purchase all or some of Scottish Government's equity stake in the property, or if you wish to re-mortgage. You may also incur legal and valuation costs in relation to such matters.
Charges (which again can include legal and valuation costs) may also be incurred if you are in breach of the equity loan conditions, or fail to pay any sums which have become due and payable by you. This will include interest at 2% above the base rate of Royal Bank of Scotland on overdue sums.
If you have any questions relating to this letter or to the Scottish Government equity loan, please contact [ Insert details ]. We also recommend that you take independent financial advice and legal advice before deciding to proceed with the purchase of the property.