Shared ownership sales policy

Introduction

Magna Housing has a commitment to create great homes and provide opportunities for people to get onto the property ladder. Magna work in partnership with the relevant government agent to achieve this. We'll endeavour to help existing customers if they are a first-time buyer, or used to own a home but can't afford to buy one now.

This policy details the way we determine how shared ownership properties are sold, financially assessed and allocated for new builds and for properties that have been sold before (re-sales).

This policy includes how Magna Housing view adverse credit when assessing a customer buying a shared ownership home.

This policy details the monthly minimum surplus income a customer should have when purchasing a shared ownership home. This is to ensure the customer isn't putting themselves in financial risk.

This policy also includes downward staircasing for shared ownership homes where the percentage of the equity owned by the customer is less than 100%. It also includes discretionary buy-backs.

Downward staircasing is where the customer sells some of their shares in the home back to Magna meaning they retain a legal interest in the property; or they sell their entire share in their home back to us but remain in the property on an assured tenancy.

Discretionary buy-backs are where we have the option to buy-back the shared owner's share when they wish to sell their share and move on.

All other assisted home ownership initiatives, for example Right to Acquire or Right to Buy aren't covered by this policy.

Shared ownership - sales criteria

We'll sell shared ownership properties in line with the relevant government criteria.

We'll allocate properties to prospective purchasers on a first come first served basis subject to eligibility, except where an application is received from a prospective purchaser with a qualifying military connection as specified in the relevant government criteria.

First come first serve

The demand for shared ownership homes in some circumstances exceeds the supply. It's important to be clear how Magna Housing allocates the shared ownership homes to future customers.

In line with the regulatory guidance Magna Housing have to offer the shared ownership homes on a first come first serve basis.

Magna Housing's first come first serve policy is as follows:

• The first eligible customer to pass the financial assessment, submit all of the required documents and be approved by one of the mortgage advisors on Magna Housing's panel.

Affordability

Prospective purchasers will undergo a financial assessment with a financial advisor to ensure they're able to afford the purchase. The financial advisor will be selected from a panel with whom we have a service level agreement.

Surplus income policy

Magna Housing work with a panel of specialist shared ownership mortgage brokers to qualify and financially assess each customer prior to them reserving a shared ownership home.

In addition, Magna Housing follow the Homes England guidelines to ensure any potential purchaser has a safety net of surplus income and isn't over-reaching in their purchase and putting themselves in financial risk.

Magna Housing's required minimum surplus income is 10%.

This is the minimum amount of gross income that a customer should have remaining after commitments.

Adverse credit

This policy applies to all prospective purchasers who may wish to purchase a shared ownership home from Magna Housing. Adverse credit describes problems with a person's credit history. This can also be referred to as bad credit and can be caused by defaults, CCJs, late payment or bankruptcy.

Mortgage lenders are cautious about adverse credit history. If the customer has had credit problems in the past, the customer is more likely to have them in the future. The customer is viewed as a higher risk.

The factors below should not be rigid, from time to time there will be customers who will have experienced circumstances beyond their control. Magna Housing will engage and rely on the advice from the panel of mortgage brokers to financially qualify each prospective purchaser. In addition, we have a set sales procedure which is followed.

Reservation fees (new builds only)

Where a prospective purchaser wishes to reserve a particular property, a reservation fee of £500 will be taken by us. The property will then be removed from the market. The reservation fee is deducted from the price of the property on sales completion.

We'll consider refunding the reservation fee in the event of the sale not completing only in the following circumstances:

• Mortgage failure - the prospective purchaser's mortgage application is unsuccessful
• Change in circumstances - for example, a job loss or other changes that makes it impossible for the prospective purchaser(s) to sustain the costs of shared ownership
• Viewing - the prospective purchaser, having reserved the property 'off plan', decides after viewing the property that it isn't suitable
• Delay - delays in construction resulting in sales completion slipping by more than six months from the published date

'Off-plan' sales (new builds only)

'Off-plan' is the term used to describe the selling or purchasing of a new build home before it's complete with only the plans available for inspection.

We'll seek to secure 'off-plan' reservations prior to practical completion of the properties and before prospective purchasers are able to view them. In doing so, we'll inform the prospective customers with good quality and accurate marketing material within the budget constraint of the development.

Show homes and view homes (new builds only)

In most cases, we won't provide a show home or a view home and as detailed above rely solely on 'off-plan' marketing. However, we'll take a specific view on each individual development.

We may consider a full show home where budgets allow this enhanced experience for the potential purchasers.

Exchange of contracts and sales completion

We anticipate that exchange of contracts will take place eight weeks from Magna approving the sale. It's common practice for the provider's solicitor to require an exchange of contracts within 28 days of the contract papers going out.

The 28-day requirement will be specified but with the understanding that exchange can't take place until a formal mortgage offer is in place (if applicable).

Completion will take place at a date agreed between Magna and the purchaser.

Warranty handling (new builds only)

Shared ownership properties developed by us will come with the benefit of an NHBC Buildmark warranty (or similar). The Buildmark provides warranty and insurance protection to newly built homes.

The cover starts from exchange of contracts and lasts up to a maximum period of 10 years after the legal completion date. This warranty requires the builders to put right defects for two years after the property has been handed over from the developer to Magna.

Mitigation in the event we struggle to sell a new build property

We'll deploy risk mitigation strategies to reduce the risk of having properties that can't be sold. We'll first exhaust all of the following opportunities:

• Reduce the sales price (in line with the local market)
• Change the % sold (improve affordability)
• Look at the rent to sale initiative (delay the sales income)

We'll engage a Royal Institution of Chartered Surveyors (RICS) qualified surveyor to provide an independent valuation that can be used in the financial appraisal. In addition, a market appraisal will be completed.

If we're unable to sell for any reason, we'll ensure that these properties can be converted to the rental portfolio. As part of this risk strategy, we'll need to model the impacts of the loss of sales income and the consequent subsidising of this through rent. We'll use internal subsidy to do this.

Risk mitigation strategies will be agreed by the Head of Development and Sales, in consultation with the Asset Investment Committee where appropriate.

Downward staircasing / buy-back

We won't agree to downward staircasing or discretionary buy-backs where the location or type of property doesn't meet our strategic priorities, financial interests or where we're unable to provide good quality customer service. The Land and Property Options Group will need to review this on a case-by-case basis. There's no legal or contractual requirement on us to accept downward staircasing applications.

Downward staircasing is permitted only in cases where other options for avoiding repossession have been exhausted in order to meet Recycled Capital Grant Fund (RCGF) requirements. It's a last resort option to enable a shared owner experiencing financial difficulties to remain in their own home despite changes in their financial circumstances.

It's aimed at preventing repossessions and the loss of the home and isn't a means of allowing the shared owner to restructure their debts (including rent arrears) or otherwise improve their financial position. It also meets our objective to support sustainable communities. The minimum share allowed is stipulated by the Affordable Homes Programme.

The shared owner must produce suitable evidence to prove their difficulty with mortgage repayments although they need not already be in mortgage arrears. Shared owners must be able to show that other short and long-term options, such as loan rescheduling, or selling and moving to a cheaper property within a reasonable travel to work area have been exhausted.

We must ensure that funding is available to enable downward staircasing to proceed. The Capital Funding Guide states that providers may use their RCGF. The payment due to the shared owner or mortgagee must be the market value of the share to be repurchased as determined by an independent qualified valuer. We'll commission and fund an independent building survey and valuation. However, recycled grant may only be used to fund up to a maximum of 70% of that share's market value. The remaining balance must be funded from our own resources. Lesser amounts of recycled grant topped up by our own resources are also permitted.

Where we agree to downward staircasing as an option the following eligibility criterion must be met in order to meet RCGF requirements:

• We must confine offers of downward staircasing to shared owners in our own stock (this can include grant funded and non-granted funded stock);
• The shared owner must be paying rent on the unsold equity in the property (the term 'rent' excludes ground rent and service charges);
• We must take into account the shared owner's ongoing ability to meet future repair and maintenance liabilities;
• Future sustainability should be based upon advice from an independent debt counselling agency, and should include consideration of Universal Credit eligibility; and
• Should we consider repurchasing all of the shares so that we own 100%, converting the tenure to an assured tenancy, then we must undertake a survey of the property before completion of the downward staircasing application in order to assess any immediate or future repair liabilities that would be required under the Regulator of Social Housing's home standard. This will include the independent building survey and valuation and our own stock condition survey. All landlord compliance activities will be completed before the downward staircasing takes place and we'll verify that the property is in a safe condition before proceeding. The cost of these and any outstanding repairs will be met through the repurchase process and completed as part of the agreement.

We must repurchase enough equity to reduce the shared owner's total housing costs to a level which is manageable and sustainable in the long-term. This can include repurchasing sufficient equity to:

• Clear the mortgage
• Pay off arrears of interest and principal on the mortgage

Any rent charge will be recalculated as part of the downward staircasing process to reflect the portion of the property then being owned / rented.

Discretionary buy-backs

We must ensure that funding is available to enable discretionary buy-backs to proceed. We can use RCGF up to 70% of the market value of the share to be purchased. RCGF can be applied to buy-back shared ownership homes where:

• Owners have to move home due to exceptional circumstances
• The property is affected by building safety issues which are impacting the sale
• The outcome - the shared owner is able to sell their property and move home promptly

Discretionary buy-backs will be considered where the following conditions are satisfied:

• The property was grant funded;
• The shared ownership lease was issued after April 2006 and contains a clause giving us an option to indicate whether or not we'll consider buying back the property;
• However, Homes England would only expect us to exercise this option where the value of the property means that it hasn't been possible to find a suitable nominee able to afford to purchase the existing share, and the shared owner has been unable to find a purchaser on the open market; and
• We may also consider discretionary buy-back where there is a good business case or reason to do so. For example, serious building defects / fire safety risks where we need to decant to carry out the works.

Responsibilities

The Land and Property Options Group is accountable in relation to all aspects of downward staircasing and discretionary buy-backs at Magna and is responsible for the development and review of the downward staircasing and buy-back policy, ensuring that this meets all regulatory requirements.

Applications for downward staircasing and discretionary buy-backs will be signed off by the Finance Director and the Land and Property Options Group in accordance with the criteria set out above under the sections titled Downward staircasing / buy-back and Discretionary buy-backs.

This policy will be considered and approved every three years by the Land and Property Options Group in line with the policy review timetable.