States Loan Scheme

Policy Guidelines No 2

1 What is the Purpose of the Scheme?

1.1 In 1950 the States established a building loans scheme to enable first-time buyers to purchase their first homes. At the time, Building Societies did not exist in the Island and Banks had not yet become extensively involved in lending for house purchase.

1.2 The scheme was incorporated in Law and Regulations and a special fund (the Dwelling Houses Loan Fund) established in order to finance loans from States general revenues.

2 Who Qualifies for a Loan?

2.1 States loans may be granted by the Housing Committee where the following conditions are satisfied:

(i) the applicant(s) are residentially qualified to buy property;

(ii) they are first-time buyers who have never owned residential property freehold in Jersey;

(iii) they can demonstrate that they have any deposit which the Committee may require and can meet the loan repayments;

(iv) they are married couples [or, if single, have dependant(s)] if the property on which the loan is to be made has more than one bedroom. (Single persons qualify for a loan on a one bedroom dwelling.)

3 What Financial Parameters Apply to the Scheme?

3.1 At the time these guidelines are dated, the following financial parameters apply to the scheme:

(i) the maximum loan the Committee can make is £120,000;

(ii) the Committee would normally expect a borrower to have a deposit, which should generally be not less than 10% of the purchase price. Exceptions can be made in individual cases;

(iii) the Committee has no objection to a borrower supplementing his loan with a second loan from a private source, provided that the extent of his borrowing does not undermine his ability to repay the Committee's own loan;

(iv) the Committee will normally expect a borrower to sell any expensive luxury items he might possess (e.g. boat, luxury car, second home abroad) and put the cash proceeds of these towards the purchase of the property he is seeking to buy; the same principle applies to any stocks and shares the borrower may possess;

(v) the amount borrowed is that which the applicant can repay without his repayments exceeding one-third of income and without the term of the loan exceeding the borrower's 65th birthday;

(vi) the maximum rate of interest for loans granted before 14th October, 1992, in most cases, is 10%;

(vii) the maximum rate of interest for loans granted since 14th October, 1992, is a variable one fixed by the Housing and Finance and Economics Committees from time to time;

(viii) irrespective of whether a loan was granted before or after 14th October, 1992, the Committee has discretion to reduce the interest rate applicable in order to assist the borrower to afford the loan; the rate cannot, however, be reduced below 3% if the property purchased is a flat or maisonette, and 5% if it is a house;

(ix) as a borrower's income increases, interest charged increases until the maximum rate specified under the terms of his loan agreement with the Committee is reached. Generally, a borrower does not pay more than one-third of income in repayments;

(x) if at any time during the course of the loan a borrower's financial circumstances deteriorate, the Committee may reduce the interest rate at which the loan is repaid. Repayments may be assessed immediately when income drops, e.g. because of pregnancy, illness, unemployment, etc. Again, the rate cannot be reduced below 3% or 5% respectively (please see para. (viii) above);

(xi) although a joint loan is normally based on a husband's gross income, exceptions can be made to include wife's income in individual cases;

(xii) repayments are based on gross joint incomes, where applicable, and are due to commence fifteen days after passing contract;

(xiii) there is no limit on the price of a property which a borrower may buy with the assistance of a States loan.

4 Over What Period does a Loan Need to be Repaid?

4.1 The period of the loan is normally up to, but cannot extend beyond, the borrower's 65th birthday.

5 Are Loans Available on Flats?

5.1 States loans are available for the purchase of flats by “flying freehold” or "share transfer”. They may also be made to first-time buyers who take the unexpired portion of a contract lease on a flat or maisonette owned by the Housing Committee itself (e.g. flats at Les Quennevais, Clos des Sables, Maisond'Azette).

5.2 A borrower wishing to acquire a property through "share transfer" will normally be expected to pay a minimum deposit of 10%. The borrower is also required to pay the Committee's legal expenses involved in the loan transaction when buying a "share transfer" property, and these are currently estimated to be around £200.00.

5.3 Loans are granted to married couples, with or without children, and single persons with dependants, for flats of any size. Loans are granted to single persons on one bedroom flats only.

5.4 Under current Housing Committee policy, somebody who has a States loan on a flat is entitled to a second loan (up to the maximum amount available under the scheme) in order to buy a house, provided the flat is sold to a first-time buyer, and the nett proceeds are put towards the new purchase.

6 Are Further or Additional Loans Available?

6.1 A borrower is generally entitled to one loan only, the only significant exception being where a flat owner seeks to buy a house as described in 5.4 above.

6.2 The Housing Committee has discretion under the Regulations to grant second loans in special circumstances, but this is very rarely exercised. The scheme is intended for first-time buyers and the Committee intends to keep it this way.

6.3 The Committee has discretion to grant additional loans to borrowers who need to carry out essential repairs or alterations to their properties. Again, this discretion is cautiously exercised. The purpose of the scheme is to assist first-time buyers purchase their first homes, rather than to help borrowers improve properties they already own. The latter are therefore expected to borrow privately for this purpose. Exceptions are made, however; for example, where a couple need to extend their property by adding a bedroom necessary for an additional child but cannot afford to borrow privately.

7. What if a Borrower Falls into Arrears?

7.1Borrowers are required to make their loan repayments on a regular basis and the Committee does not normally tolerate arrears. In the event of a loan account falling into arrears, the Committee can apply to the Court to have the property vested in public ownership. Effectively, therefore, it can repossess the property. In this event, it can insist that the property is sold (to another first-time buyer or by public auction). The proceeds of the sale are paid to the borrower, minus any amounts owing to the Committee by way of principal or interest, and any costs incurred by the Committee in the sale.

7.2 In the event of the sale not being likely to produce a sum sufficient to repay the amount owing to the Committee, the Committee is entitled to retain the property in its ownership and, in these circumstances, is under no obligation to make any payments to the borrower.

7.3 Where a borrower falls into arrears because of difficult circumstances - e.g. unemployment, unexpected reduction in earnings, etc. - the Committee makes every effort to enable the borrower to remain in the property. Reasonable arrangements are agreed to enable arrears to be repaid over a phased timescale, depending on the circumstances of individual borrowers. The Committee would not take the same view where arrears are incurred without good reason.

7.4 Borrowers are encouraged to make early contact with the Housing Department when problems with repayments are anticipated.

8 Can Staged Payments Be Made When a Borrower is Having a House Built Privately?

8.1 Arrangements can be made to advance a loan in stages where a borrower is having a house built for him. The key pre-requisite for this arrangement is that a legal contract exists which gives the borrower clear legal title to the plot on which the property is to be built.

8.2 Further, a loan agreement needs to be registered in the Court before staged payments may be made.

8.3 Normally advances from the borrower's loan account may only be made on receipt of an architect's or surveyor's certificate, confirming that the work has been completed in accordance with approved plans.

8.4 Loan repayments commence one month after the Island Development Committee has issued a certificate of practical completion of the property in question. Repayments reflect accrued interest charges since the granting of the loan.

9 What Procedures are Followed when Applying for and Receiving a Loan?

9.1 Once an applicant has located or been offered a property he wishes to buy with the assistance of a States loan, the following procedure applies:

(i) a loan application form is completed by the applicant and an appointment made with an officer of the Law and Loans Section of the Department;

(ii) the applicant will also need to complete an application for Housing Committee consent under the Housing Law to purchase the property on which the loan is requested;

(iii) the applicant will be required to show that he is in full-time, permanent employment and has been with his current employer for at least six months; and to give proof of income and savings;

(iv) if the applicant is self-employed, he must provide audited accounts for his business covering the last three years;

(v) a Loans Officer in the Department will sort out with the applicant the financial parameters which will apply to him in the event of the Committee approving the loan - e.g. amount of loan, period of loan, rate of interest, etc.;

(vi) the Committee will require a survey/valuation of the property by a suitably qualified practitioner in order to ensure that the funds to be loaned are secure. The applicant is responsible for arranging and paying for the survey but should not arrange it until he is advised by the Department to do so;

(vii) on receipt of the survey report, the Committee may require further specialist surveys and reports depending upon the condition of the property;

(viii) following receipt of a satisfactory survey/ valuation and any further information required, the Committee is asked to approve the offer of a loan as previously discussed by the applicant and Loans Officer;

(ix) the applicant will be required to provide details of mortgage protection and property insurance policies before contract is passed;

(x) assuming the Committee approves the offer, a legal agreement (hypothec) between the Committee and borrower is prepared and registered in the Royal Court. This sets out in legal terms the rights and obligations of each party and the borrower's legal adviser will be able to assist in explaining these to him;

(xi) the Committee takes a first charge on the property in case a borrower defaults in his repayments;

(xii) monthly repayments are made to the States Treasury, by Standing Order.

10 How are States Loans Funded?

10.1 States loans are paid from a special fund created by the States, called the Dwelling Houses Loan Fund.

10.2 The amount of loans outstanding from the Fund is currently of the order of £60M. and this is estimated to increase by a further £20M.£30M. over the next few years.

11 Is interest subsidy repayable to the States?

11.1 Interest subsidy is repayable if the borrower sells his property or reimburses his loan during the course of the loan period. He repays whatever subsidy he may have received during the course of the loan, that is, the difference between the interest rate actually charged by the Committee and the Midland Bank Variable Mortgage rate wherever the former is less than the latter.

11.2 However, if the loan runs its full term, no interest subsidy is repayable.

11.3 The Committee has discretion to reduce the amount of subsidy repayable, or to waive it in full, in individual cases of hardship.

12 Are States Loans "transferable" from one property to another?

12.1 The Committee may allow an existing borrower to have a new loan on an alternative property, provided he sells his existing property to a first time buyer.

12.2 If he is selling a flat or maisonette, he may qualify for a full loan on a house. If he is selling a house, he may qualify for a new loan equal to the capital sum outstanding on his current loan, and on the same terms applying to his current loan agreement.

12.3 Any interest subsidy received during the current loan will be transferred to the new loan and is repayable, without interest, only in the event of the borrower selling the new property, or reimbursing the new loan before its scheduled expiry date.

P.O. Box 587, Jubilee Wharf,

24 Esplanade, St. Helier, Jersey JE4 8XT

March, 2000