In spring 2019, Nicola Sturgeon announced a new £150 million national pilot scheme, called the First Home Fund, to help first time buyers get on the property ladder in Scotland. This scheme will provide loans to help at least 6,000 first time buyers purchase a property in Scotland. The scheme opened for applications on 18th December 2019. 

On 9th July 2020, Kate Forbes, Scotland's Finance Secretary, announced that the Scottish Government would invest an additional £50 million into the First Home Fund to help first time buyers during the Coronavirus pandemic. 

If you're interested in applying for the First Home Fund, the Scottish Government has recommended that you seek independent mortgage advice to check that the scheme is right for you and your circumstances. ESPC Mortgages is a team of independent mortgage advisers based in Edinburgh who are specialists in helping first time buyers with their first mortgage. Get in touch with the team today to find out how they can help. 

Find out everything you need to know about the First Home Fund below and check out our first time buyer guide to find out more useful information on buying your first home in Scotland. 

Scottish flats

Is the First Home Fund still open for applications during lockdown? 

With social distancing measures in place in Scotland as a result of the Coronavirus COVID-19 pandemic, you may be wondering if this scheme is still open for applications. The answer is yes but applications are taking longer than usual to process. 

How much money are first time buyers entitled to from the scheme?

The First Home Fund will lend eligible buyers up to £25,000 (this will be capped at 49% of the property valuation or purchase price, whichever is lower) to help boost their deposit and help them on to the property ladder.

Will I still need to contribute a deposit payment?

Yes, you will still need to contribute a deposit of at least 5% (subject to individual lender requirements) of the value of the house or flat. The loan is available to help boost this deposit.

Who is eligible for the First Home Fund and are there certain requirements I need to meet?

The scheme is open to all first time buyers in Scotland who are taking out a mortgage. You can’t apply to the scheme if you are a cash buyer or if you have previously owned a property in the UK or abroad at any time, as either a sole or joint owner.

There is a limit of one application per property – you can submit a joint application, but you will be limited to one award of £25,000. Your mortgage must be capital repayment and be at least 25% of the purchase price. 

The property must be your sole residence – the scheme is not eligible for buy-to-let properties.

You also cannot apply for any other Scottish Government shared equity schemes (e.g. Help to Buy), while applying for this scheme. You must withdraw any other open applications if you choose to apply for the First Home Fund. 

Can I use money from a Help to Buy ISA or Lifetime ISA alongside the First Home Fund?

You may have been using a Help to Buy or Lifetime ISA in order to save for your first home, as these both offer a 25% government boost on savings. You can use the money from these for your deposit when using the First Home Fund. 

I’m a first time buyer but my partner is not – will we be eligible for the scheme?

Only one of the joint purchasers of a property must be a first time buyer in order to apply for the scheme. However, the other purchaser will need to ensure any properties they own have been sold before the completion or date of entry of the new property being purchased.

How do I apply for the First Home Fund?

Once you’ve had an offer accepted on a property, you can fill out the application form on Link Housing, which will ask for personal details and information about the property you are purchasing. You must do this before your Solicitor concludes the missives for your purchase.

The completed form will be sent to the Administering Agent for the scheme, who will complete a sustainability assessment to assess whether you can meet your monthly mortgage payments. If your application is accepted, then you, your independent mortgage adviser (if you have one) and your solicitor will receive an Award Letter from the Administering Agent.

The Award Letter is valid for three months, during which time you are expected to conclude missives. If you do not conclude missives in this time, then your application will be cancelled, and you’ll need to re-apply.

Once you receive your Award Letter, you should also contact your independent mortgage adviser and lender to start the process for a full mortgage. The settlement of the purchase must be completed within 6 months of the date when you conclude missives.

A fee of £550 will be charged and collected by the Administering Agent once they receive your application. This will be refunded to you if your application fails at any time, except in cases where there has been misrepresentation or fraud on your part.

The Scottish Government has recommended that you obtain independent mortgage advice before applying to this scheme, to ensure it is right for you and your circumstances.

Is it a cash or equity loan scheme?

When this scheme was initially announced in the spring of 2019, it was suggested that it would be cash loan scheme, making it different to Scotland’s help-to-buy scheme. However, it has now been confirmed that it will be an equity loan scheme.

Buying a property through a shared equity scheme means you split the cost of purchasing the property with the Scottish Government. You will fund your share through a deposit and mortgage and the Scottish Government will fund the rest.

Whatever amount the Scottish Government fund (up to £25,000, which is capped at 49% of the valuation or purchase, whichever is lower), will be invested as a percentage share of the property valuation.

However, you will own the property outright and hold the full title.

When does the loan need to be repaid?

You must repay the loan when you sell the property. How much you need to repay depends on how much you borrow on the scheme and what percentage of the property’s value this make up.

For example, if you use £25,000 for a property valued at £100,000, you will need to repay 25% of the property’s selling price to the government when you choose to sell.

This means no monthly payments are required, unlike a mortgage.

You can also pay the loan back before by increasing your equity in the scheme. You will need to speak to the Administering Agent before doing this and there are costs involved in increasing equity which you will be responsible for.

There are some conditions on how you can increase your share, which are covered below:

  • You must increase your equity share by at least 5%.
  • If your equity share is 90% or higher, any further increase must be to 100%.
  • You may increase your equity share up to 100%.

In order to increase your equity share, a property valuation must be undertaken. This will provide you with the open market value of the property which will be used to calculate equity shares. You will have three months from the date of this valuation to increase your equity share and make payment.

If you are planning to sell your property and repay the loan at that stage, you also need to notify your Administering Agent. You also cannot sell your property below 95% of the valuation figure without the agreement of the Scottish Ministers.

How is this new initiative different to Scotland’s current Help to Buy scheme?

A major difference is that the First Home Fund will be applicable to both re-sale and new build properties. The Help to Buy scheme is only available on new build properties.

Another key difference is the loan amount – the Help to Buy scheme helps to fund 15% of the purchase price while the new scheme will offer first time buyers up to £25,000.

The Help to Buy scheme is also limited to property purchase up to £200,000. The First Home Fund does not appear to have an upper limit on the property purchase price.

Will this scheme replace the current Help to Buy scheme?

No, at present this scheme will not replace the current Help to Buy scheme, which is due to run until March 2022.

Can I use the loan money to bid over the valuation of the property?

The Scottish Government has confirmed that the loan amount is not intended to be able to be used to bid over the Home Report valuation of property.

This means that you will need to save a 5% deposit, and the money required to bid over the Home Report valuation of the property. Starter homes in Edinburgh and the surrounding areas are in high demand, so are frequently sold for over their Home Report valuation.

So, will this scheme actually help first time buyers in Scotland get on the property ladder?

Prior to COVID-19, most lenders only required a minimum 5% deposit for a mortgage. However, during the Coronavirus pandemic, many lenders have raised their minimum deposit amount to 15%. However, with the First Home Fund, you still only need to save a 5% deposit and the money from the Scottish Government can boost your deposit to 15% of the property's value, making you eligible for more mortgages. It is therefore particularly useful to first time buyers in the current circumstances, who may struggle to otherwise save a 15% deposit. 

One of the other main advantages of this scheme is that it will be applicable to both resale and new build properties, meaning you have a greater choice of homes and areas. The Help to Buy scheme was only available with new build developments, meaning you would be restricted to areas where these developments are being built.

When are applications to the First Home Fund open until?

The scheme opened for applications on 18th December 2019 and it is due to run until March 2021.

Find out more

Find out more about the First Home Fund in the Scottish Government guidance leaflet.

Read our first time buyer guide to find out the nine steps to buying your first home.

ESPC Mortgages is a team of independent mortgage specialists who can help you with your home buying journey. Get in touch with the team by filling out our form below, emailing fsenquiries@espc.com or 0131 253 2920.

The information contained in this article is provided in good faith. Whilst every care has been taken in the preparation of the information, no responsibility is accepted for any errors which, despite our precautions, it may contain.

The initial consultation with an adviser is free and without obligation. Thereafter, ESPC Mortgages charges for mortgage advice are usually £350 (£295 for first time buyers). YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR OTHER LOANS SECURED AGAINST IT.

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