Earlier this month, the Scottish Government launched its new £150m scheme for first-time buyers called “First Home Fund”. The Scheme will run until March 2021 coinciding with the end of the current term of the Scottish Parliament and like the existing Help to Buy Scheme, will be administered by Link Housing Association Limited. The First Home Fund will supplement the existing initiatives to help aspiring homeowners, such as Help to Buy and Open Market Shared Equity, but there are several key differences.
How is it different from other schemes?
The main difference is just as the name suggests, the First Home Fund is restricted to first-time buyers and so a home buyer who already owns a house in Scotland or anywhere else in the world will not be able to participate in the Scheme. Where two people are buying a house, one of them must meet the tests of a first-time buyer and the other must have sold their property before they can receive funding.
As with the existing schemes the property must be bought for use as the buyers’ main home. Unlike the new supply help to buy schemes which are restricted to new build only, the First Home Fund applies to the purchase of both existing homes and new build homes. There are also differences on the financial side.
Unlike the Open Market Shared Equity Scheme, applicants do not have to show that they need support in order to afford to buy a home. However, applicants cannot be cash buyers and must take out a capital repayment mortgage for at least 25% of the value of the property to qualify for the Scheme. They must also show that their outgoings will not exceed 45% of their net income once mortgage payments have been taken into account and provide a minimum deposit of 5% towards the price. There is no cap on the value of the property that can be bought through the Scheme but the maximum contribution from the Scottish Government will be £25,000 or 49% of the value of the property (whichever is lower).
Buyers can only apply once they have either reserved a new home or had an offer to buy an existing home accepted and before their contract to buy (missives) becomes legally binding. If successful, the buyers have 6 months from the date their missives become binding to complete the purchase of their new home. If unsuccessful, the £550 application fee will be refunded.
No interest will be payable on the funding awarded until the equity share is repaid. The equity share is the percentage of the original purchase price which is paid by the funding and generally will have to be repaid to the Scottish Government when the property is sold. The equivalent percentage of the market value of the property at the time of the sale will be payable. So, for example, if the home was bought for £150,000 and £15,000 (10%) funding was awarded, 10% of the sale price will be due to the Scottish Government.
Builders, lenders and independent financial agents do not require to be registered with the Scheme in order to participate, however, lenders wishing to participate should notify the administering agent.