Ministers consult on order to prevent shared equity value avoidance

The Scottish Government is taking steps to prevent house buyers under Government-backed shared equity schemes from taking unfair advantage of a rule regarding mortgage repayments.

The "20 year security" rule was introduced in the Land Tenure Reform (Scotland) Act 1974, to prevent feudal superiors from getting round the ban on creating new feuduties through very long term standard securities. It allows borrowers to redeemed a security after 20 years by repaying all money advanced together with interest and expenses.  

If the rule was applied to schemes such as Help to Buy, however, under which the Government has a secured right to share in the value of the home on a resale, the householder could gain by paying off the original amount of the financial assistance provided, once 20 years had passed, although the Government's stake would otherwise be worth more if property values had increased.

Under a new provision added to the 1974 Act, ministers are proposing to make an order exempting these schemes from the 20 year rule: 

• The Help to Buy (Scotland) Scheme
• Homestake
• Open Market Shared Equity Scheme
• New Supply Shared Equity Scheme
• The Help to Adapt Scheme

Shared ownership transactions would not be included, because no security is involved and the Government has an actual title to part of the home. The consultation is also of the view that Islamic mortgages are not covered by the 20 year rule, but views are invited on whether this is correct.

Click here to view the consultation. The deadline for responses is 2 January 2015.