Armed Forces Home Ownership Scheme

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.

Explaining AFHOS

The aim of the Armed Forces Home Ownership Scheme is to make is affordable for members of the Armed Forces to enter the property market by offering a loan to supplement a mortgage and deposit on a home. It can be difficult for Service personnel to settle down when they are frequently posted abroad but life in service accommodation can grow tiresome. In addition to LSAP,  AFHOS therefore enables individuals to make their first move into the housing market where they may not otherwise have had the funds.

The way that AFHOS works

Service personnel who have served for between 4 and 6 years and are hoping to purchase a property up to a maximum value of £300,000 can apply for AFHOS and if approved, they will receive an equity loan worth between 15 and 50% of the value of the property. This loan is paid by the Housing and Communities Agency (HCA) but will only be granted if you obtain a High Street mortgage and can demonstrate your ability to cover other associated costs such as the deposit.

This home can then be rented or sublet which can particularly attractive given the amount of time the Service personnel are required to spend abroad, provided that permission is granted by Swaythling Housing Society Ltd (which acts on behalf of the HCA).

Who qualifies for AFHOS?

There are a number of requirements which must be satisfied in order to qualify for AFHOS.

• Only personnel with 4-6 years of service will be considered for the Scheme. This will be measured from the point at which the application was made.

• You must secure a high street mortgage and demonstrate that you can pay for the deposit and all other costs associated with moving in (e.g. stamp duty, legal fees).

• You must prove that you can afford to sustain the costs of home ownership

• Your credit record must be satisfactory and you should not have any outstanding tenancy disputes or rental arrears

• Prior to formalising the arrangement, you must provide proof that any properties owned before have been sold. Your name must not feature on the deeds of another property.

What types of property can I buy using AFHOS?

Few properties are excluded from the home ownership scheme which allows personnel to move into a property which is old or new provided that is does not cost more than £300,000. The following properties are however unavailable through the Scheme:

• Commercial buildings

• Mobile homes, motor-homes, narrow-boats and other similar accommodation

• Properties up for auction

• Properties which are still occupied

• Plots of land on which the applicant of a building group plans to build a home

• A property offered at a reduced price or under shared ownership by a public body or housing association

What will happen when I finish Service?

Your equity loan in interest whilst you are still a serving member of the armed forces, however, if you are made redundant or you retire, you will need to begin repaying the HCA after one year. Should you die, this duty of repayment is passed on to any surviving joint mortgagee or to your estate. The rate that you pay is worked out in line with the Royal Bank of Scotland’s Standard Variable Rate and will increase year on year until year 7.

Y1: no payments owed

Y2: monthly payments at 2% lower than SVR-RBS

Y3: monthly payments at 1% lower than SVR-RBS

Y4: monthly payments pinned to SVR-RBS

Y5: monthly payments at 1% higher than SVR-RBS

Y6 (and from then on): monthly payments at 2% higher than SVR-RBS

What happens when I want to sell my property?

You may sell you property whenever you wish but in order to do so, you must get a valuation from a property surveyor and provide proof of this to Swaythling Housing Society first. The HCA has a right to the same percentage of the proceeds from the property sale that it contributed in the form of the equity loan, so if your equity loan covered 25% of the initial property price, you will need to give the HCA 25% of the sale proceeds bearing in mind that the interest payment structure outlined above will apply.

The exact amount that you must repay will be worked out using your valuation. You may not sell the property for less than the valuation however you may sell it for more. Should you sell it for more than the valuation, you should be aware that the amount owed to the HCA will vary accordingly.

So if you purchased a house for £220,000 using a 25% equity loan from the HCA which was then valued at £240,000, if the house sold at the valuation price, you would owe the HCA £60,000. If the house sold for £280,000 you would instead owe £70,000.

If the valuation was lower than the price initially paid then the HCA will accept the loss and you will still only be required to pay a percentage of proceeds equivalent to the loan contribution.

Is funding limited under AFHOS?

Funding is limited and the Armed Forces Home Ownership Scheme is highly popular so it is very important that you get your application in early to avoid missing out on the benefits offered.

No funding will be granted until you have instructed an independent financial advisor to carry out your financial assessment and convinced Swathling that you are in a sufficiently comfortable financial position to meet the costs of the deposit and stamp duty etc.

Call today for legal advice on the Armed Forces Home Ownership Scheme

If you would like help with buying a house using AFHOS, our team are happy to help.

To speak to one of our military lawyers, simply call [01722] 422300, or Complete the contact form below

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N.B. – this information is accurate as at January 1, 2013