Cabinet Secretary for Infrastructure and Capital Investment

Alex Neil MSP ~ T: 0845 7741741 E: scottish.ministers@scotland.gsLgov.uk

The Scottish Government

To All MSPs
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~DELIVERING A GAMES LEGACY FOR SCOllAND

15 March 2012

Dear Colleague

Last Monday I announced that the Scottish Government has agreed to provide a guarantee to facilitate the launch of a three year mortgage indemnity scheme by Homes for Scotland, supporting the purchase of up to 6,000 houses and flats over three years. The scheme will apply only to new-build homes built by a participating housebuilder and with a maximum price of 250,000. Applicants must be buying their main home and the scheme will not include, for example, shared equity or shared ownership purchases. The scheme has been developed by Homes for Scotland and the insurance specialist Jardine Lloyd Thompson, supported by the 250,000 loan and grant funding that the Minister for Housing and Transport announced last June. I believe that our offer of a guarantee to support this initiative will ensure that it offers a real boost to Scotland's construction sector and to wider economic growth. In particular, it will unlock the increased availability of 90 to 95% loan to value mortgages for new build housing in Scotland, helping credit-worthy households who are currently unable to buy a new home due to high deposit requirements, supporting housebuilding activity and jobs and boosting Scotland's economy. Homes for Scotland have estimated that over three years the scheme could create or safeguard 22,800 new construction jobs and over 650 apprenticeships. The scheme will provide for compensation to be paid to a participating lender in the event that, having followed all the usual processes that apply in Scotland, they have to repossess a property within a seven year period and then sell it at a price lower than the amount of the outstanding mortgage. In order to meet any such costs, participating housebuilders will lock away 3.5% of the sale price for each new-build home into a specific cell within a captive insurance company. These funds will be held for seven years from the point of sale and cannot be accessed by the housebuilder during that time.

Scottish Parliament. EdinbUlrgh. EH99 1SP www.scotland.gov.uk I

The Scottish Government's guarantee, which will be worth 5.5% of the sales price for each eligible home, will sit behind the housebuilder indemnity. It is important to be clear that we will take steps to mini mise the risk to the public purse associated with that guarantee. Lenders will absorb a Rercentage of any loss following repossession, and the funds set aside by housebuilders within a cell within the insurance company will have to be exhausted in full before the Scottish Government guarantee can be called on. In addition, we will require each cell within the scheme to contain a minimum number of transactions, we will set an overall maximum limit to our potential exposure and we have set a 250,000 price limit for eligible properties. This contrasts with a figure of 500,000 agreed for a similar scheme which the UK Government announced earlier this week for England. Following my announcement, discussions are now underway with Homes for Scotland and the Council of Mortgage Lenders to finalise the details of the scheme in Scotland and agree a launch date. Detailed discussions will also take place between interested lenders and housebuilders. We will make a further announcement once those discussions have concluded and the scheme is ready to be launched.

ALEX NEIL

Scottish Parliament. www.scotland.gov.uk

EdinbJrgh.

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