Decoding the Redemption of Heritable Securities (Excluded Securities) (Scotland) Order 2025

In a move to secure financial stability for historical shared equity schemes, the Scottish Government has introduced the Redemption of Heritable Securities (Excluded Securities) (Scotland) Order 2025. This legal instrument, crafted under the Land Tenure Reform (Scotland) Act 1974, aims to exempt certain shared equity loans from the '20-year rule,' which usually allows borrowers to pay off their loans after 20 years.

Key Takeaways

What is the '20-Year Rule'?

The '20-year security rule' is a provision that allows borrowers to redeem their loans, including interest and fees, once they hit the 20-year mark of their loan term. This rule generally empowers borrowers but poses potential financial risks to lenders, especially in the context of shared equity schemes.

Why the Exemption?

The exemption specifically targets two shared equity schemes: Homestake and the First Home Fund. These schemes involve loans linked to property values, and the 20-year rule could potentially disrupt financial plans if numerous borrowers decide to pay off their loans simultaneously at the 20-year point.

Policy Objectives

The 2025 Order builds on a similar measure from 2018, which removed the right to redeem for certain shared equity securities. However, the 2018 regulation did not encompass all existing equity schemes, necessitating this new legislative action. The current Order ensures that participants in these schemes, including those prior to 2018, are not caught off guard by the 20-year redemption option.

Impact on Shared Equity Owners

The Scottish Government argues that this policy does not strip shared equity owners of any rights. Instead, it ensures continuity and financial predictability by requiring owners to agree to new terms well before the 20-year threshold is reached. For those in the First Home Fund, for instance, prior communication has informed them of this legislative intention, with solicitors tasked to notify clients.

Child Rights and International Alignment

The Order is deemed compatible with the United Nations Convention on the Rights of the Child, as per the Scottish Government's certification. Additionally, the regulation does not impact Scotland's efforts to maintain alignment with EU policies.

Consultation and Impact Assessments

The Order follows extensive consultations with stakeholders, including Registered Social Landlords and Local Authorities, building on foundational discussions from 2015 for the 2018 Order. Various impact assessments have been carried out, confirming no adverse financial effects on businesses or communities.

In summary, the Redemption of Heritable Securities (Excluded Securities) (Scotland) Order 2025 represents a strategic move by the Scottish Government to safeguard the financial integrity of its shared equity schemes by exempting them from the 20-year rule, while ensuring stakeholders are informed and prepared for this legislative adjustment.