IMPORTANT – the Armed Forces Home Ownership Scheme has now been closed and is not open to new applications. It was replaced in April 2014 by the Forces Help To Buy Scheme – click here for information about how this new military home loans scheme can help you.
What is the Armed Forces Home Ownership Scheme?
The Armed Forces Home Ownership Scheme was introduced in 2010 in order to help service personnel purchase a home on the open property market. Under the scheme, members of the Armed Forces who would not otherwise have had the capital required to purchase their own home, receive an equity loan of up to 50% of the value of the property to help raise the capital needed for purchase.
So if you are a member of the Armed Forces considering entering the property market, you may wish to consider AFHOS as well as a Long Service Advance of Pay Loan .
How does AFHOS work?
AFHOS allows applicants who qualify for the scheme to purchase a property costing no more than £300,000 using a combination of a mortgage and an equity loan paid for by the Housing and Communities Agency (HCA). The sum of this equity loan will be somewhere between 15% and 50% of the value of the property and therefore will not be greater than £75,000. The HCA will only authorise such a loan if you can fund the deposit and secure a standard mortgage to cover the remaining 50-85% of the property’s value.
Am I eligible for AFHOS?
Here are the criteria you must meet in order to be eligible for AFHOS:
1. You must have served continuously for between 4 and 6 years at the time of application and the HCA will verify this with the MoD.
2. You need to be able to prove that you have sufficient finances to cover the deposit (up to 5% of the property price), any conveyancing fees, stamp duty and other related costs
3. You must also demonstrate that you will be financially secure enough to continue meeting the costs associated with ownership
4. Your credit history must good. If you have outstanding rent payments and/or a poor credit record, it will be assumed that you are unable to sustain ownership of the property and you will be unlikely to receive a grant.
5. If you already own a property, you must prove that you have sold the property before exchanging contracts
6. You cannot be listed in deeds for any other properties
Whilst there are no limits on household income, you should remember that the scheme has limited funding, so apply early in order to avoid disappointment.
AFHOS – what sort of property can I buy?
There are relatively few restrictions on the types of property that can be purchased under this military scheme. Most new builds and existing properties will qualify for funding other than the following exceptions:
• Homes sold at auction
• Commercial properties
• Land which has not yet been built on (regardless of whether it is the applicant or a house-building company which wishes to build on the plot)
• A property which still contains tenants
• A property on the market offered under a shared ownership scheme or at discount by the Local Housing Authority or another public establishment
• Caravans, mobile homes and houseboats
AFHOS – what if I leave the armed forces?
For as long as you remain in service, your loan (or Second Charge) will be interest free. Should you retire, die or be made redundant – you (or your surviving co-mortgagee or inheritors) will need to start paying monthly fees to pay off your equity loan after one year (the first year carries no fee). These will calculated in line with the Standard Variable Rate of the Royal Bank of Scotland and will follow this pattern below:
1st year: No fees payable to cover equity loan
2nd year: Fees payable at 2% below the SVR-RBS
3rd year: Fees payable at 1% below the SVR-RBS
4th year: Fees payable in line with the SVR-RBS
5th year: Fees payable at 1% above the SVR-RBS
6th year: Fees payable at 2% above the SVR-RBS and will remain payable a this rate for all following years until the loan is repaid.
AFHOS – What happens if I want to sell my property?
Before you can sell your home, you must obtain a valuation from a fully qualified property surveyor. You must then repay the HCA for the equity loan from the proceeds received from the sale which will be proportionate to the percentage value of the AFHOS equity loan. Therefore, if your equity loan covered 15% of the property’s value upon purchase, you will owe HCA 15% of the sale proceeds. Repayment of the loan will be calculated using the surveyor’s valuation, so whilst you will be able to sell the property for more than the valuation, you will not be able to sell it for less.
For example, if your property was bought for £250,000 with a 50% equity loan and is valued at £275,000 prior to sale and sells at this same price, you must pay £137,500 to the HCA. However, if the property sells for 300,000, you must pay the HCA £300,000.
This payment is proportionate, so even if the property loses value, you will only pay the equivalent percentage to HCA that they contributed through they equity. They will shoulder this loss.
If you wish to transfer your loan to another property, known as ‘porting’, you must make a formal application to the Swathling Housing Society (the value of the loan may change in doing so).
Is AFHOS funding always available?
AFHOS funding is limited and will be allocated on a ‘first come first served’ basis. So it is advisable to get your application in early otherwise you risk missing out. Funding cannot be granted until you have had your financial assessment completed by an IFA so that your ability to pay stamp duty, legal fees and the deposit can be proven. You must not make an offer before receiving formal approval for funding.
If you wish to remortgage, sublet or make improvements to add value to your home at any point you will generally be able to do so, however you are legally required to seek permission from Swaythling first.
Contact our Armed Forces Home Ownership Scheme experts today
Our solicitors have the AFHOS expertise you need, so:
• To receive a FREE quote, give our military law solicitors a call on  422300, or
• Send us an e-mail using the contact form below
NB this information is accurate as at January 1, 2013