Care Housing negotiates a discount with the lender and purchases the property from the lender at a discounted price, i.e. below Open Market Value (OMV)
Buyback – Option A
- Borrower has option to buy back their home at the OMV on the date of the buyback, but the property cannot cost less than the price plus costs paid by iCare Housing for the property.
Buyback – Option B
- Borrower has option to buy back their home and the purchase price for the borrower on the date of the buyback will comprise:
- Price (discounted) that iCare Housing paid for it;
- Cost of repairs incurred by iCare Housing in bringing the property up to private rental standards during the period of the tenancy;
- Cost of finance incurred by iCare Housing on the property transaction and ongoing during the period of the tenancy; and
- Legal costs incurred by iCare Housing.
- Post-buyback, if the borrower sells their housing within 20 years of purchasing house from iCare Housing, they will have to pay iCare Housing a percentage of the proceeds of the sale – known as a clawback. The percentage is expressed as the percentage difference between iCare’s cost (defined as the price iCare Housing has paid the lender for the property, plus the repair, legal and finance costs incurred by iCare Housing on the property transaction and ongoing during the period of the tenancy) and the open market value of the house. This amount will be reduced by 5% each year after the borrower buy backs the property. If the borrower sells their home after 20 years, they will not have to pay any clawback to iCare Housing.The market value at the time of the borrower selling their home is used to calculate the amount of clawback due. If the gap between the original sale price and market value has narrowed, the amount of the clawback will also reduce. If the proceeds of the sale of the borrower’s home are below the initial price actually paid, they will not be liable to pay iCare Housing a percentage of the proceeds of the sale.
The formula for calculating the clawback percentage is:
Clawback Percentage = (Y x 100)/Z
where Y is the difference between the market value of the house at the date of sale to the purchaser and the price actually paid and Z is the market value of the property at the date of sale to the purchaser. Allowances are made for any material improvements to the property undertaken by the borrower post buy back. ‘Material improvements’ means improvements made to the property (whether for the purpose of extending, enlarging, repairing or converting the property), but does not include decoration.
The clawback is registered as a charge over the property for a period of 20 years.