Category: Business Matters
Fatwa#: 37490
Asked Country: United Kingdom

Answered Date: Feb 27,2017

Title: Heylo Housing

Question

As'salamu-'Alaykum,

My question relates to home purchasing and in particular, a relatively new home purchasing scheme offered by Heylo Housing which works on the basis of shared ownership. It would be most appreciated if you could evaluate the scheme details (below) in conjunction with other information available on the links provided and the template lease agreement attached and conclude on whether it would be permissible to purchase a property under the scheme.

Scheme summary: The scheme is called Your Home and it is an affordable home ownership scheme offered by Heylo Housing. The scheme involves purchasing at least a 10% share in a property and renting the remainder with the option to purchase more shares over time. The scheme therefore eliminates the need of taking out a mortgage.

How does the initial purchase work?:

 

- Applicant applies to demonstrate eligibility to scheme. Key eligibility conditions are  household income below £90,000 and having cash savings for minimum 10% purchase.

- Once the applicant is accepted they are given a budget for the maximum price of the property they can buy.

- The applicant is then free to find and negotiate a property on the market for resale as if a cash buyer.

- Once a property is found and the applicant's offer is accepted by the seller Heylo are notified by the applicant. Heylo require the applicant to pay for and procure a property valuation report.

- If the valuation report is in line with the price agreed with the seller, solicitors are appointed by the parties to complete the sale.

- Heylo will charge £1,200 product fee plus survey costs of around £450 before the purchase.

- Heylo buys the property from the seller in cash and on the day of completion , Heylo issues a shared ownership lease for a term of 999 years to the applicant which allocates the paid up share of the house to the applicant and rents out the remaining share to the applicant. For illustration if a property worth £300,000 is bought and the applicant opts to buy 10%, the applicant would pay £30,000 and pay rent on the remaining 90%.

- Stamp duty will be payable on the purchase based on governments stamp duty rules for shared ownership properties. 

- Rent is set at 4.89% per annum of the un-bought share. So in this example it would be £1100.25 per month (270,000 x 4.89% divide by 12). Rent will be reviewed annually on this un-bought share and will increase by RPI plus 0.75%. If RPI is zero or negative rent will increase by 0.75%.

- Rent will be collected by direct debit by Heylo on a monthly basis along with building insurance and a monthly share of the annual management charge of £181.44 (which will increase by RPI annually).

- The shared ownership lease gives the right to pass over ownership to heirs. Maintenance and repairs is also the responsibility of the occupant.

- The lease also sets the mechanism for the occupant to sell their share and mechanism to increase their share in the property. The occupant has the right to sell or buy further share as long as the outlined mechanisms are abide by. Any sale or further purchase is done at market value at the time of transaction and not at the initial purchase price of the property.

 

If the occupant wants to sell their share, how would this work?:

 

- Just like any sale of property the occupant can advertise the property for sale.

- When a price for sale is negotiated and agreed, a valuation report will be procured by the occupant. If the report is in line, the sale will proceed.

- If the illustrative property above is sold for £400,000, the occupant would get the value of its 10%: £40,000. In addition 75% of any capital gains on the un-owned portion at the point of purchase of the property will also go to the occupant, in this case: £67,500. ((360,000 - 270,000) x 75%). Giving a receipt of £107,500 to the occupant and £292,500 to Heylo.

 

- If the occupant increases their share into the property, at sale they would still get 75% of capital gains or losses on any share that was un-owned at the point of the initial purchase of the property.

- If there is a loss the sales price is shared in the same way.

- In addition there might be an administration fee payable to Heylo.

 

If the occupant wants to increase their share, how would this work?:

 

- The occupant will notify Heylo how much more share they want to acquire.

- An independent valuation will be procured by the occupant. Based on the report, the market value for the purchase of further shares will be set.

- If in the example above, if the occupant wants to increase their share to 20% by buying a further 10% and the market value is set at £400,000.

- The occupant would pay £30,000 (based on initial purchase price) for this 10% share + 25% gain on the unowned share * 10% share increase* 100,000 (gain).  

- The rent would decrease by the percentage bought: 10%.

- Costs such as buyers solicitor costs, stamp duty etc are payable by the buyer/occupant. In addition there might be an administration fee payable to Heylo.

- Stamp duty will be payable on the purchase based on governments stamp duty rules for shared ownership properties. 

 

The website for the scheme: http://www.yourhome.org.uk/.

The website for gov. stamp duty rules on shared ownership: https://www.gov.uk/guidance/sdlt-shared-ownership-property

 

Please feel free to contact me if you have any further questions.

 

Regards,

Answer

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

We have studied the Heylo Housing Scheme as explained by you. The partnership is based on the Diminishing Musharakah Partnership Model.

We require some further clarity on some steps of the scheme. You may forward us the actual contract to us for our review and analysis. We will treat the contract in confidence and guide you constructively. You may email my Respected Teacher Mufti Ebrahim Desai Saheb Hafidhahullah on mufti.ebrahim@gmail.com.

And Allah Ta’āla Knows Best

Huzaifah Deedat

Student Darul Iftaa
Lusaka, Zambia 

Checked and Approved by,
Mufti Ebrahim Desai.

 

 

 

 

 

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