“The New Home Fund – some much-needed help for first-time buyers.”
Have you been wondering how you can buy a house with a low deposit? Well, get ready, Scotland – we could have the answer for you!
The First Home Fund is a new First-Time Buyer Help to Buy scheme, offered exclusively in Scotland. The scheme is funded by the Scottish Government, as they seek to offer additional financial help to first-time buyers.
In this short article Ross Stisi covers the key points of how this new government help to buy scheme will help YOU.
What type of scheme is the First Home Fund?
The First Home Fund is classed as a Help to Buy shared equity scheme.
What does ‘shared equity’ mean?
‘Shared equity’ means you share the cost with another party. So, you will have full ownership over your home and the Scottish Government will hold a share of the property.
Who does the First Home Fund aim to help?
The scheme is designed for first time homeowners – the clue is in the name!
Why has the scheme been introduced?
Between trying to save for a large deposit, and strict lending criteria making mortgages with low deposits harder to obtain, it’s not always easy to get your foot on to the property ladder. So, the Scottish Government has identified the need to do something more to help people like you – first-time buyers.
The Government has recognised that further financial help needs to be available to first-time buyers; the existing Help to Buy scheme in Scotland is limited to new build houses only. The current shared equity LIFT scheme is also far too restrictive, in part due to the criteria for eligibility and property price thresholds.
How will the First Home Fund help me as a first-time buyer?
In short – you get funding of up to £25,000 to boost your deposit towards your new home.
The funding comes from the Scottish Government, through the New Home Fund help to buy scheme, and must be used as part of your deposit for the first purchase of your new home. You will still be required to put down 5% of your own money into the deposit. This percentage is based on the purchase price of your new home.
For example: If you’re buying a property for £100,000, you will be required to put down £5,000. The Scottish Government can then put in up to £25,000.
Do I have to borrow the full £25,000?
No. You can borrow any amount, up to £25,000, that you need. The less you borrow, the less of a share the Government will own – which will benefit you when you come to sell.
Are there any restrictions on the type property I can buy?
Unlike other schemes of a similar nature, you can use the fund against any new build or existing built properties. There are no limits on things like the number of bedrooms, which are restricted in other types of schemes. Just to be clear, the First Home Fund is for residential properties and not for any type of commercial properties.
The other key point is that the property needs to be of a ‘tolerable standard’. You can find out more on the MyGov.Scot website if you’re unsure what this means.
Sounds too good to be true! Are there any other restrictions?
Believe it or not, there are not many.
The key restrictions for you:
- You must not own any other property, nor have ever owned or held title to any other property at any point, either in Scotland or anywhere else in the world
- If you are buying as a first-time buyer and you wish to buy with someone else who already owns a property, then this property must be sold by the time your new purchase completes (i.e. you get the keys). This includes needing to sell any background buy to let investment properties
- The maximum funding from the Scottish Government is £25,000. How much of this you apply for will depend on your needs.
- You must be taking out a mortgage of at least 25% of the purchase price and your mortgage must be on a capital and interest basis
- You cannot use this in conjunction with any other government schemes however you can still use a help to buy ISA or a lifetime ISA to fund your 5% deposit
- Your monthly costs cannot be more than 45% of your net income (the amount you have available to spend each month)
- The Scottish Government will not be able to have more than a 49% share in the property. For example, if you are buying a property for £45,000, you could only apply for up to 49% of this, which would be £22,050
Buying your property
- You must already have an offer accepted on a new property before applying for the scheme
- Your solicitor cannot have already concluded missives (this is the legal contract) between you and the person selling the house, prior to your application for the First Home Fund
What’s in it for the Government? Surely, they are not doing this for nothing?
This is a very good question.
In our opinion, this is a win-win situation for both the first-time buyer and the Scottish Government. You get to a buy the house you never thought you could afford, and they get to invest some cash into property, just like any other investor would. Think of it as an interest-free loan and a calculated gamble by the government.
So how does the Government get its money back, I hear you ask?
The Scottish Government only benefits from this if you benefit from it. What does this mean?
Let’s take a simple example:
- You’re buying a house for £100,000
- You borrow £70,000 by way of a mortgage
- You put down a £5,000 of your own cash on top
- The Government puts in £25,000
So, here, the Scottish Government owns a 25% share in your property.
Time passes, and you decide to sell the property. For the ease of this example, we shall say the house has doubled in value over the past 20 years.
- You sell the house for £200,000
- The Government gets back 25% of the new sale price, so receives £50,000
- You keep the 75% which is left, £150,000
- Everyone is a winner!
Over that 20 years, you have paid no monthly payments on the original £25,000 and zero interest on the £25,000. I would say it’s an absolute stroke of genius.
But what if the house sells for less than I bought it for?
If you lose then the Scottish Government will lose, and this is a risk they are willing to take. You just need to look at historical house values to know that over time and through the scheme as a whole, they won’t lose, and neither will you.
The Scottish Government portion is always based on a percentage figure. If the value of your home drops by 10% by the time you come to sell it, then their share also drops by the same percentage.
For the purposes of clarity, house prices can go up and down over time and the above statement is not in any way to be taken as advice regarding house valuations.
Who is the First Home Fund Help to Buy scheme not for?
- Buy to let investors
- Existing homeowners
- Purchases anywhere else in the world other than Scotland
- Scheme abusers (if you are not sure what I mean then you are not a scheme abuser; if you know exactly what I mean then I will make sure you get caught. Shame on you!)
How much does it cost to apply to the First Home Fund?
You will be charged a fee of £550 for administration purposes, payable on application to the Scottish Government. The fee will be refunded if your application is unsuccessful.
This administration fee is required to be paid three weeks prior to your new house purchase completing and you picking up the keys. Failure to pay the fee will result in your application being cancelled.
Can I buy out the Government?
Yes – you can buy out their share at a minimum of 5% each time, and at any time that suits your circumstances. The only real limiting factor is that they cannot own less than 10%.
For example, if you owned 90% and they still currently owned 10%, then your next purchase of their shares would have to be the full 10% that’s left, giving you complete ownership.
How can I find out more?
Stisi Group are industry experts and specialise in shared equity mortgages and shared equity government schemes. We’re always delighted to help first-time buyers get their foot on to the property ladder; moreover, we understand that sometimes the process can be daunting.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances. The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.