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Discount Market Sale - How to buy using DMS scheme

06/01/2020
Discount Market Sale (DMS) – also known as Council Shared Equity or reduced market value scheme – is a low cost home ownership product where you can buy a new build or existing property at a discounted price from a local council participating in the scheme in collaboration with developers (who are often housing associations).

This discount is usually around 20% – but may be as high as 50% – a restriction is placed on the property’s Land Registry Title to ensure that the property remains at that discounted rate in perpetuity for future purchasers.

The scheme is to help low and middle earners and first time buyers get onto the property ladder. Much like schemes such as Help to Buy, Shared Ownership and Heylo Your Home, there are eligibility criteria which you have to meet to satisfy the scheme's administrators. Many commentators have praised the scheme describing it as 'shared ownership without the rent'.

This article considers the following related to the Discount Market Scheme (DMS):


Buying a Discount Market Scheme property?

Our expert property lawyers have experience with dealing with local councils nationwide when it comes to buying homes through the DMS scheme.

They work to ensure that you arrive at completion efficiently and in as short a time frame as possible.

* Fixed Fee – No Sale No Fee – On all Mortgage Lender Panels


    1

    How does the DMS scheme work and what are the eligibility criteria?

When new build properties for the scheme are available, they come about as a result of a partnership between the local council and the developers, which are often housing associations.

They are sold at between 20% to 50% below their current market value to buyers who meet the criteria.

To qualify for one of these properties applicants must meet these eligibility criteria:
  • you can’t have an interest in another property
  • you must be a resident or be employed within the particular borough council/local authority operating the scheme, sometimes for a number of years
  • you must earn a gross annual income household income at the date of application for the property that does not exceed 45 per cent of the discount market sale price of the property.
You will have initial fees to pay to your council to apply for the scheme.
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    2

    How do you pay for your Discount Market Sale (DMS) property?

You need to pay using savings or a mortgage in the normal way. You are always advised to consult an independent mortgage broker not least because not all lenders are prepared to lend towards people buying using the DMS scheme, however media reports suggest that large household lenders such as Nationwide have previously lend to many buyers using the scheme.

Discounts can be quite large, perhaps 40% of the full market selling price of a property. Frequently the minimum deposit you’ll have to produce is 5% of the selling price so in this scenario, your loan-to-value ratio from a mortgage lender would be 55% - this means you may get a comparatively favourable rate, particularly when compared to shared ownership mortgages.


    3

    What stamp duty is payable for Discount Market Sale and does the first time buyer waiver apply?

DMS schemes, where offered, are essentially unique even though there are some broad rules - as discussed in this article - which are applicable across all of them.

Regarding stamp duty, you can normally expect to pay it based on the purchase price you're paying and not the full value. This is not least because not all schemes offer you the chance to buy the remaining portion which you don't own via DMS staircasing.

That said, we've found one example online where someone claimed to have had to pay stamp duty based on the full, undiscounted market value of the property. You should therefore carefully enquire about this matter with the organisers of the particular scheme you are looking to use and always remember that it is your personal responsibility to pay the correct stamp duty where HMRC is concerned. We asked HMRC for full guidance about this matter but had not heard anything back from them at press time.

First time buyers - can you claim the waiver for a DMS purchase?
Yes you can. As discussed above, if you'll have to pay stamp duty, it will most likely be calculated on the discounted price you're paying, with the same caveat discussed. The actual size of the discount, however, depends on the size of the purchase price and you'll get nothing if you're buying your property for more than £500,000, even if you are a first time buyer. It is also subject to your satisfying HMRC's eligibility criteria, including for example, that you cannot own any other property anywhere in the world when you apply for the waiver.

Please examine our guidance on the first time buyer stamp duty waiver for more detailed information about this matter.


    4

    What ongoing payments must you make after you’ve bought your Council Shared Equity property?

You have to make your normal monthly mortgage repayments if you’ve used a mortgage to buy and to pay for service charges if you’ve bought a leasehold flat. You don't, however, have to pay rent on the portion the council continues to own, unlike the case for shared ownership.


    5

    Staircasing your DMS property (buying the part that was discounted which the council hold)

You can actually staircase – i.e. buy the remaining interest that was discounted which the council still hold the interest in (you don’t pay anything like shared ownership rent on this remaining interest) – however this is subject to your individual council allowing this. Where they do allow this, you have to do it ‘in one go’.


    6

    Can you make internal alterations to your DMS property?

Yes, normally, because legally you own 100% of the property even though both your lender and the local council hold an equity charge against it.


    7

    How do you sell your DMS property?

You can sell your home at any time but you have to notify your local authority in writing of your intention to sell, which is known as an Availability Notice, which you can normally available on your local council's website for you to email to them online.

The DMS scheme is part of the Low Cost Home Ownership scheme so prospective buyers themselves must be eligible in the way that you were (see above). This condition can sometimes vary depending on the council involved and it may be that the relevant authority might decide to have first refusal because of a waiting list, but if it does not have a candidate, you may be able to sell to anyone without restriction.

You have to sell the property with the same discount percentage you received when you bought it. This works as a kind of hedge because even though you won’t be able to take advantage of a large price rise entirely (if you haven’t staircased) but if prices fall, you won’t suffer the entire effect. Councils vary in terms of how they ascertain the correct valuation figure.

Some expect you to confirm the current value of the property by providing the authority with 3 written valuations for the full Open Market Value of the property from three reputable local estate agents, the sales value then being calculated and agreed by taking the average of these three valuations and applying the purchase discount. This is then the maximum sales value which you can sell at through your chosen estate agency.

Others however, such as Hammersmith & Fulham, expect you to appoint an independent valuer to set the price, which you’ll have to pay for, and you are always advised to check your local council’s conditions regarding this matter.

SAM Conveyancing offers a nationwide coverage of RICS valuers – click if you require a RICS Discount Market Sale Property Valuation.

Once again, in order to progress with your sale, you should always instruct an experienced Discount Market Scheme (DMS) property lawyer to act for you and you’ll have to cover the Council’s legal costs with regard to selling the property.


    8

    Where can you find a Discount Market Sale (DMS) property to buy?

Consult your local council’s website.

Click on find your local council (you'll need a postcode) if you're unsure who your local council is.

NB Not all local authorities/councils offer this service and for those that do, there’s no guarantee that you’ll find a property to buy at any one time.

Purely for example purposes, click to visit the London Borough of Hillingdon's Discount Market Sale (DMS) web page


Buying a Discount Market Scheme property?

Our expert property lawyers have experience with dealing with local councils nationwide when it comes to buying homes through the DMS scheme.

They work to ensure that you arrive at completion efficiently and in as short a time frame as possible.

* Fixed Fee – No Sale No Fee – On all Mortgage Lender Panels

Related Articles
Help to Buy Equity Loan
08/11/2019
Heylo Housing Shared Ownership
17/10/2018
What is Shared Ownership?
04/12/2019