Are you wondering how you can buy a house with a low deposit? Well, it’s good news, Scotland – the First Home Fund is reopening!

Before we jump into all 15 things you need to know about the First Home Fund, here’s a super-fast overview:

• First time buyers in Scotland could get up to £25,000 towards the deposit on their first home.
• There are no monthly repayments or interest to pay – instead the Scottish Government receives a share of the sale price, whenever you decide to move on.
• The current scheme will only run until 31^st March 2022 or until the funds run out.
• The funding pot for the current scheme is £60 million – this is a huge cut from the £200 million in the original fund.
• Due to the limited funding and duration, we expect to see high demand for the fund.

Now you’ve got the general idea, our Bearded Broker Ross Stisi explains how this help to buy scheme will help YOU.

What type of scheme is the First Home Fund?

The fund is a 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.

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 is the scheme so important?

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 identified the need to do something more to help people like you – first-time buyers.

The existing Help to Buy scheme in Scotland is closed for 2021 – 2022, due to current additional budget pressures. However, even when it is open, it is limited to new build houses only.

The current shared equity LIFT scheme is also far too restrictive. This is 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. It’s also an affordable scheme, as there are no monthly repayments to make and no interest to pay. We’ll talk about repayment later on.

The funding comes from the Scottish Government, through the First 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:

Properties

• 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

Finances

• 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.

20 years later, you decide to sell the property. For the ease of this example, we shall say the house has doubled in value over this time:

• 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 the 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, specialising in shared equity mortgages and shared equity government schemes.

We honestly love helping first-time buyers get their foot on to the property ladder. We also understand that sometimes the process can be daunting, so we’re here to answer your questions and guide you right through the process.

Please get in touch with us if you’d like to chat with one of our team. You can call us on 0131 510 1240 or email us at info@stisi.co.uk to find out more!

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.

A recent report from Online Mortgage Advisor found that 11 out of 31 local authorities have become less affordable in Scotland over the last ten years – and revealed that East Lothian has seen the largest affordability ratio increase of any local authority over this time. The higher the ratio, the wider the gap between local earnings and property prices.

The latest figures from ESPC (Edinburgh Solicitors Property Centre) found that properties in East Lothian experienced a 9.4 percent increase in average selling price year on year, from November to January, up from £247,950 to £271,211.

This continues a rising trend for house prices in the region – ESPC reported an 18 percent increase in average selling prices from 2010 to 2019. This trend has continued through 2020; despite the unprecedented closure of the property market with the first Coronavirus lockdown, average selling prices still rose, to £264,035 – an increase of 5.9 percent on 2019.

While the thriving East Lothian property market is good news for the region, it also means that first time buyers often cannot afford to purchase a home in their local area. To compound this, the Scottish Government has announced cuts to help to buy schemes, due to the current additional financial pressures on the budget. The main Help to Buy (Scotland) scheme has been closed for 2021 – 2022, and the Open Market Shared Equity (LIFT) scheme has been reduced to £44 million for the year.

There is however some hope for first time buyers, with the First Home Fund – currently closed due to these extraordinary circumstances – now due to reopen on 1^st April 2021. This scheme hasn’t escaped the budget cuts though, and has been reduced from £200 million last year, to just £60 million for 2021 – 2022.

Local family businesses Stisi Group mortgage experts and Clancys Solicitors and Estate Agents have teamed up to offer a free First Home Fund information session, in a bid to ensure that local first time buyers don’t miss out. The shared equity scheme offers a free loan of up to £25,000 towards a first property deposit; the buyer needs only to provide a five percent deposit.

Funding is offered on a first come, first served basis, across Scotland. With the additional financial pressures of the Coronavirus pandemic making it more difficult than ever to save a deposit, the main Help to Buy scheme closed, and the severe cuts to the LIFT and First Home Fund, it’s expected that demand will be high and the available funding will run out quickly – long before the March 2022 end date.

Ross Stisi, Stisi Group Managing Director, said: “Strict lending criteria is making mortgages with low deposits harder to obtain and we know it’s not easy for everyone to save up for a large deposit. As the First Home Fund is a shared equity scheme, it works like an interest-free loan with no monthly payments. Anyone interested will need to act quickly though, as industry experts expect demand to soar. I wouldn’t be surprised if funding ran out within months, or even weeks, due to uptake.”

Paul Clancy, Property Director at Clancys Solicitors and Estate Agents, added: “We’re keen to make sure local first time buyers hear about this opportunity, as it could be the difference in making a home in East Lothian affordable to them.

“A great advantage of the First Home Fund is that it’s not means-tested like other shared equity schemes, so I feel this will be able to help a lot more first-time buyers in the EH postcode area.” 

The free information event First Time Buyers – How to get £25,000 towards your new home – will be held on Saturday 6^th March, at 10am, via Zoom. Bookings is via Eventbrite.

Anyone wishing further information can call Stisi Group on 0131 510 1240, email info@stisi.co.uk or follow @StisiGroup on social media.

Free First Home Fund workshops

The two family businesses teamed up to run two free First Home Fund workshops in a bid to ensure that local first-time buyers don’t miss out on the Scottish Government scheme, which offers a free loan of up to £25,000 towards a first property deposit. Funding will be offered on a first come, first served basis, across Scotland. The buoyancy of East Lothian’s property market – while good news for the region – makes purchasing a first home here more challenging.  

Both workshop sessions, held at Eskmills Business Park on Saturday, were fully booked within a week, highlighting the need for financial assistance for local first-time buyers to purchase property in the area.

A challenging market for first-time buyers

The latest figures from ESPC (Edinburgh Solicitors Property Centre) reveal a thriving property market; the December 2019 average selling price saw an increase of almost 12 percent on December 2018, to £250,972. This rise isn’t a one-off event either – ESPC report an 18 percent rise in average selling prices from 2010 to 2019. In addition, selling times are getting quicker; down from an average of 86 days in 2010 to just 27 days in 2019.

Stisi Group and Clancys have welcomed the launch of the new help to buy scheme, which recognises the difficulties now faced by those trying to get a foot on to the property ladder. The First Home Fund is a shared equity pilot scheme launched in December 2019, with an initial £150m funding pot.

A loan to bring home ownership within reach

First-time buyers may apply for up to £25,000 towards the cost of the deposit on their first home, whether a new build or existing property. This loan will bring home ownership within reach for many who have been struggling to save for a house deposit, with the Scottish Government estimating that up to 6,000 first-time buyers will be able to use the scheme to purchase their first home.

“We were delighted to welcome so many local first-time buyers to our information sessions. The First Home Fund is a genuinely exciting new help to buy scheme, and we’re looking forward to seeing it boost home ownership in East Lothian.

“Strict lending criteria is making mortgages with low deposits harder to obtain and we know it’s not easy for everyone to save up for a large deposit. As the First Home Fund is a shared equity scheme, it works like an interest-free loan with no monthly payments. It’s a real opportunity for first-time buyers to buy a property, and to buy locally.”

Ross Stisi, Stisi Group Managing Director

Paul Clancy, Property Director at Clancys Solicitors and Estate Agents, added: “We put this workshop together with the intention of educating the attendees, and I was just blown away by the engagement in the room and the number of questions asked.

“One of the things I really love about the First Home Fund is that it’s not means-tested like other shared equity schemes so I feel this will be able to help a lot more first-time buyers in the EH postcode area. Already the response has been overwhelming, with a lot of first-time buyers looking to take this forward.”

Billy Barclay, a first-time buyer who attended the workshop, said: “It’s great to see local businesses spreading the word about the Government initiatives that are available to help first-time buyers. The information given at the event was really valuable, and I’m now looking to apply to the First Home Fund. It’s exciting, as my dream of buying my first place is a step closer to reality!”

In response to the overwhelming interest in the First Home Fund workshops Stisi Group and Clancys are now planning further sessions in East Lothian and Edinburgh. They also welcome any enquiries from first-time buyers unable to attend, but who would like to know more.

Dates for these additional workshops will be announced in the next few weeks. In the meantime, anyone interested can call Stisi Group on 0131 510 1240, email info@stisi.co.uk or follow @StisiGroup on social media.