First time buyers can find it difficult to get on the property ladder and the uncertainty of the pandemic did little to help this. Fortunately, for first time buyers the Scottish Government have various schemes which are aimed at helping people buy their first home.
The schemes set up by the Scottish Government are: –
First Home Fund
The First Home Fund is a shared equity scheme that provides assistance for first-time buyers with up to £25,000 to buy a property that they would not ordinarily have the capital to buy at the present time. The loan only needs to be repaid on the sale of the property, when the Scottish Government will receive a share of the sale proceeds.
The scheme is open to all first-time buyers and, significantly, can used in relation to both new-builds and existing properties. To qualify for the scheme, you must be taking out a mortgage of at least 25% of the purchase price, and it must be a capital and interest mortgage. This cannot be used along with any other Government scheme apart from the fact that you can use your Lifetime ISA (see below) to fund your deposit.
The Scottish Government opened up the First Home Fund for new applications on 1st April this year. It had been previously forced to stop taking applications as the budget had been used up within a week. This raises the question whether the Government should reduce the amount of people that can apply to utilise the First Home Fund. There is an argument that the scheme should be means tested to ensure that those who require it the most are most likely to benefit.
You can open a Lifetime ISA (Individual Savings Account) to buy your first home, provided you are between the ages of 18 and 40. A person can invest up to £4,000 a year until the age of 50, however, you must make your first payment before the age of 40. The government will then add a 25% bonus up to a maximum of £1,000 per annum. This is an excellent scheme which can assist many people in buying their first home. If the money is not used for this purpose then it can be used for your care when you are older.
The Mortgage Guarantee Scheme
The Government recently announced a new mortgage guarantee scheme. This should allow more people to qualify for a 95% mortgage enabling them to perhaps get on the property ladder if they cannot afford to put up a 10% deposit. To qualify for this scheme the mortgage must be:
• a residential mortgage and not a buy to let or a second home;
• taken out by individuals and not a company;
• on a property with a market value of £600,000 or less;
• for a loan to value of between 91% and 95%;
• within the dates specified in the scheme; and
• able to meet the standard in relation to the borrower’s ability to pay.
The scheme will run from April 2021 to December 2022 and under this scheme the Government guarantees the amount of the mortgage over 80%. However, the interest rates on these mortgages will be significantly higher than if you were able to provide a 10% deposit as opposed to a 5% deposit.
There are various other schemes around such as:
• Low-cost Initiative for First Time Buyers (LIFT)
• New Supply Shared Equity (NSEE)
• Open Market Shared Equity Scheme
In most of these schemes, while you will be the owner of the property, the Government has a share in the equity of your property and this will be required to be repaid if and when you sell it. While you can “buy out” the government’s share at any time, people may have insufficient capital to do this. Therefore, it is vitally important that purchasers and their advisers fully consider all the options available to them before deciding.
The scheme that suits you best will be dependent on what type of house you wish to purchase and how much of the cost you are able to cover.
For those considering any of these options please get in touch with Blackadders’ Property Team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth and across Scotland.
William Allardice, Trainee Solicitor
The opinions expressed in this blog are of the author only and do not necessarily represent the opinions of Blackadders LLP.
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